Preamble

The House met at half-past Two o'clock

PRAYERS

[Mr. SPEAKER in the Chair]

PRIVATE BUSINESS

EDINBURGH CORPORATION ORDER CONFIRMATION BILL

Read the Third time and passed.

Oral Answers to Questions — TRADE AND COMMERCE

Imported Goods (Marking)

Mr. Swingler: asked the President of the Board of Trade if he will now take steps to ensure that goods imported into the United Kingdom are clearly marked with the name of their country of origin.

Dr. Stross: asked the President of the Board of Trade whether he has now given further consideration to the request of the British Pottery Manufacturers' Federation and the Pottery Workers' Society of Great Britain that imported pottery should be marked with the name of the country of origin, instead of with the words "Foreign" or "Empire"; and what conclusion he has reached.

The President of the Board of Trade (Mr. Peter Thorneycroft): After receiving representations from various quarters, I have decided that the withdrawal of the present option to mark goods with the words "Empire" or "Foreign" as an alternative to the name of the country of origin is inexpedient and, accordingly, I do not propose to introduce legislation to amend the Merchandise Marks Act, 1926.

Mr. Swingler: Is the right hon. Gentleman aware that this Question is still regarded as a very important one by employers and workers in the pottery industry? Will he explain why it is impossible to introduce what seems to be a very simple measure to enable consumers to judge the character and quality of imported goods?

Mr. Thorneycroft: I do not think that it is in the general interest of a great trading nation such as ours to complicate the business of international trade by insisting upon the detailed marking of imported goods. We are constantly complaining to others about their doing that kind of thing.

Iron and Steel Companies

Mr. Marquand: asked the President of the Board of Trade whether he will introduce legislation to establish a public corporation to own and operate those iron and steel undertakings the securities of which are now vested in the Iron and Steel Holding and Realisation Agency.

Mr. P. Thorneycroft: No, Sir. The Iron and Steel Act, 1953, remains the policy of Her Majesty's Government.

Mr. Marquand: But when the right hon. Gentleman opened the new tube works at Stockton last week, did he not think of the fact that the whole of the works had been built by investments provided while the firm remained in public ownership, and would it not be a shame for it to be handed back now in the way it is proposed to do under the Iron and Steel Act?

Mr. Thorneycroft: That raises a wider question. I am deeply impressed by all the enterprise, public and private, which I see in the steel industry.

Mr. Marquand: Has the right hon. Gentleman not studied the experience of the Minister of Transport? Is he not afraid that if he sells the big South Durham and other efficient firms he will shortly be in the position of holding a collection of inefficient firms which he cannot sell back? Will the right hon. Gentleman not profit by the experience of his right hon. Friend?

Mr. Thorneycroft: Questions about sales by the Agency should be addressed to the Chancellor of the Exchequer.

Textile Labelling

Miss Burton: asked the President of the Board of Trade whether he is aware that agreement has been reached in the Netherlands between fabric manufacturers, housewives' organisations, and the laundry industry on a system of informative textile labelling; and if he will


appoint a committee to investigate the possibilities of similar labels for washing and cleaning fabrics in this country.

Mr. P. Thorneycroft: I am aware of the Netherlands agreement, which was reached on a voluntary basis. The British Standards Institution has already a committee, fully representative of the interests concerned, which is working towards a similar voluntary agreement in this country.

Miss Burton: While I believe that I am correct in stating that on 1st December we may reach a similar stage here, may I ask whether the right hon. Gentleman is aware that we have been four or five years getting there? Could he not give a push in this direction?

Mr. Thorneycroft: The hon. Lady's Questions have themselves given a push in this direction.

Anglo-Yugoslav Trade (Mr. Kardelj's Visit)

Mr. Rankin: asked the President of the Board of Trade if he will make a statement on the outcome of his official talks with Mr. Eduard Kardelj to improve trade with Yugoslavia.

Mr. P. Thorneycroft: My right hon. Friend the Minister of State had the pleasure of meeting Mr. Kardelj when he called on my right hon. Friend the Chancellor of the Exchequer. There was a short but useful exchange of views about the prospects for an increase in Anglo-Yugoslav trade. In particular, the possibility of closer collaboration in the field of Yugoslavia's agricultural exports was discussed.

Mr. Rankin: Was any consideration given to the fact that British traders are handicapped because Yugoslavia charges dried fruit at the nominal weight and not at the actual weight, making no allowance for loss through evaporation in transit, and that that is a hindrance to trade between Britain and Yugoslavia? Was any consideration given to that?

Mr. Thorneycroft: No detailed points of that character were raised, but if the hon. Member puts down a Question, I shall be happy to answer him.

Exports to China

Mr. Parkin: asked the President of the Board of Trade whether, in view of the fact that Japan is exporting galvanised sheets to China, he will now permit a similar concession to British manufacturers.

Mr. P. Thorneycroft: Yes, Sir, in similar or other special circumstances a similar concession would be permitted to British manufacturers.

Mr. Parkin: Is the right hon. Gentleman aware that this announcement will give considerable satisfaction, since it is hoped that this deal between Japan and China will give a lead to concessions for manufacturers in this country, who represent industries with a traditional right to a share in an important world market? May I express the hope that, for example, the concession would extend to generators?

Mr. Parkin: asked the President of the Board of Trade on what dates, and after what consultations, the list of goods banned for export to China was modified; and what items were altered.

Mr. P. Thorneycroft: Platform and fork-lift trucks were added to the embargo list in April, 1953. The embargo on ordinary passenger cars and on sodium peroxide was removed in October, 1953. These changes were made after consultation with the other members of the Consultative Group in Paris.

Mr. Parkin: Will the President of the Board of Trade recognise that when the original list was drawn up in the implementation of this country's obligations under the United Nations Resolution there was no obligation on our part to consult anyone else? Will the right hon. Gentleman make it clear that, if there are now such consultations, that arrangement has been entered into since and is not in any way stemming from the original Resolution, which was to shorten hostilities in Korea?

Mr. Thorneycroft: I think the questions of the list and the amendment of it are for the Foreign Office, but they do stem from the United Nations Resolution. We have agreed with these other nations to draw up an agreed list and alter it by negotiation.

Tariffs and Trade (Geneva Negotiations)

Mr. Bottomley: asked the President of the Board of Trade if he will make a statement concerning the proposed meeting in Geneva, on 18th January, 1956, of the member-nations of the General Agreement on Tariffs and Trade.

Mr. P. Thorneycroft: Following the passage last summer by the United States Congress of the Trade Agreements Extension Act, the Contracting Parties to the General Agreement on Tariffs and Trade have agreed to arrange for further multilateral negotiations for the reduction of the general level of tariffs. These negotiations, in which about twenty-five Contracting Parties, including ourselves and the United States will be taking part, are to open at Geneva on 18th January, 1956. They will take place under substantially the same rules and procedures as previous tariff negotiations under the General Agreement, and the usual procedures for consultation both with industry and with other Commonwealth countries are being followed.

Mr. Bottomley: If we are to have "Trade, not aid," would the President agree that the United States should be asked to stop putting a percentage increase on bids made by British companies?

Mr. Thorneycroft: That raises a rather different question. There is a Question later on the Order Paper which deals with that point.

Captain Duncan: Will my right hon. Friend bear in mind the difficulties of the horticultural industry when entering into these discussions?

Mr. Thorneycroft: I shall bear in mind the interests of all industries in the consultations that take place.

Mr. Holt: Is the right hon. Gentleman going to this conference with any positive proposals for reducing tariffs in the United Kingdom?

Mr. Thorneycroft: Request lists are exchanged under this procedure between the countries concerned before negotiations take place.

Mr. Bottomley: May I make it clear to the right hon. Gentleman that there is a difference between the supplementary

question which I put to him and the Question on the Order Paper? I asked whether he will make representations to all the contracting parties against the United States procedure on bids?

Mr. Thorneycroft: That raises a different question from the one on the Order Paper, which is concerned with general negotiation on tariff levels.

United States Contracts (Tenders)

Mr. Bottomley: asked the President of the Board of Trade why he declines to make representations to the United States Government against the addition to the lowest foreign bid of 12 per cent. for the purpose of appraising bids.

Mr. P. Thorneycroft: The new rule adopted by the Department of the Interior is a clarification and an improvement on what has happened before. Previously a low bid by a foreign firm had little, if any, chance of success if the lowest United States bidder intended to manufacture the plant in an area of substantial unemployment as defined by the Secretary of Labour. In the circumstances, it would be inappropriate to make representations to the United States Government against the decision.

Mr. Bottomley: It may be an improvement upon past procedure, but it is still bad; it prevents trade. Surely the President ought, on behalf of the Government, to make representations against this development?

Mr. Thorneycroft: We have to maintain some sense of proportion about this subject. Had we an area in this country where the unemployment level was 6 per cent., we should be trying to introduce some form of protection for it.

Mr. Gower: But will not my right hon. Friend look at this again? Is it not the case that there is virtually no bicycle industry in America comparable with our industry but yet they have restricted the import of bicycles from this country?

Mr. Thorneycroft: I have already stated my view about the bicycle position in the United States very plainly, but I think that is different from this question of areas of substantial unemployment.

Mr. H. Wilson: Is not the President aware that we have never sought to use


protection of any kind, whether tariff protection or refusal of bids, as a means of dealing with the problem of one of the Development Areas, but that both parties have accepted the Distribution of Industries Act? Should not the right hon. Gentleman suggest to the American Government that the right way to deal with the problem would be by the use of similar procedure?

Mr. Thorneycroft: Whatever I suggested to the United States, I am bound to say that this arrangement under which the American firms get virtually 12 per cent. tariff protection is better than the system which existed before, when, if there was an area of substantial unemployment, we had no chance whatever of getting a contract.

Mr. Sorensen: asked the President of the Board of Trade how many tenders from this country for United States contracts, during the past five years, have proved to be the lowest and according to requirements, but have subsequently been rejected for other reasons; and what is the approximate total value of the orders thus lost.

Mr. P. Thorneycroft: I regret that this information is not available since Her Majesty's Government do not necessarily hear the results of all the tenders for United States contracts.

Mr. Sorensen: Does not the President feel that he would be fortified in the prospective conference in Geneva if he had this information, and would it not be of some benefit to the whole House if the information were obtained?

Mr. Thorneycroft: It would be a rather large undertaking to ask every industry to inform me of the tenders which they had put in, those which were accepted and those which were rejected. Even then I should be hard put to it to know the precise reasons for the rejections.

Mr. Bottomley: How can the President say that he is giving every encouragement to British exporters when he does not make representations against trade restrictions of this kind in the United States?

Mr. Thorneycroft: I have never hesitated to make representations in cases where I think they can properly be made.

Export Trades (Prices)

Mr. Chapman: asked the President of the Board of Trade if he will list the main industries for which he has evidence that the export drive is flagging at the present time as a result of uncompetitive prices.

Mr. P. Thorneycroft: No, Sir. Conditions vary widely, but some export business is certainly being lost in a variety of trades because prices are too high. It is vital that we should keep down our costs.

Mr. Chapman: Has not the President seen the articles in the Financial Times and elsewhere showing, for example, that our engineering industries have at the moment a price index of 103 to 104 compared with Germany's 99 to 100? Would it not be better if the Government followed a policy which would restrain wages and prices, or help people to want to restrain wages by restraining prices, so that our prices in the overseas markets would be competitive?

Mr. Thorneycroft: That raises fairly wide issues, but I would say that the principal impediment to the export trade is the condition of inflation in this country and that the prime purpose of Government policy must be to contain that inflation.

British Standards Institution (Labelling)

Miss Burton: asked the President of the Board of Trade if he would be prepared to make an additional grant to the British Standards Institution so that the results of the labelling "quiz" now being carried out by that organisation may be given additional publicity.

Mr. P. Thorneycroft: Publicity of this kind would be a matter for the British Standards Institution, which exercises its own discretion in the allocation of its funds.

Miss Burton: I am aware of that, but may I ask whether the President would not agree that this is a vicious circle and that, unless further publicity is given to this sort of thing, the position of the trade interests will not be affected? Would not the President give the British Standards Institution further money to bring this about?

Mr. Thorneycroft: I have had no request for further money from the British Standards Institution, but, in any event, expenditure of this kind should be taken out of its general grant.

Mr. Swingler: Does not the President agree that the question of improvement of labelling and marking is very important? Would he be prepared to assist the British Standards Institution in every way and give an assurance that any steps taken would apply equally to imported as well as home-produced goods?

Mr. Thorneycroft: That is rather a lot of questions, but, as the House knows, the British Standards Institution has my full support.

Miss Burton: But is the right hon. Gentleman aware that nothing short of an earthquake will shift some sections of the textile industry in their opposition to consumer labelling, and is he prepared to help the British Standards Institution to change that?

Mr. Thorneycroft: We have to proceed on the basis of voluntary arrangements and on the basis on which the Institution has worked for a number of years. There is no reason why those who think that we should go faster should not say so, and the hon. Lady is to be counted notably among them.

Merchandise Marks Acts (Prosecutions)

Miss Burton: asked the President of the Board of Trade if he will give details concerning prosecutions undertaken by his Department under the Merchandise Marks Acts since 1st August, 1953, against firms alleged to have applied false trade descriptions, such details to include trade descriptions in respect of which summonses were issued, and such penalties as may have been imposed by the courts.

Mr. P. Thorneycroft: Since 1st August, my Department has brought 34 charges against 21 firms alleged to have applied false trade descriptions. Seventeen firms were committed on 25 charges. Fines ordered to be paid and costs were approximately £700. I am arranging for a statement to be sent to the hon. Member setting out the details for which she asks.

Miss Burton: May I congratulate the right hon. Gentleman on this notable achievement, which hon. Members on this side of the House have been urging upon him for a very long time? Is the right hon. Gentleman aware that most of these cases could have been avoided if producers had been compelled to label their goods satisfactorily, and could not the Board of Trade give a lead in that direction?

Mr. Thorneycroft: As the hon. Lady knows, there is an honest difference between us. I do not believe in compulsory marking and the hon. Lady does.

Peterlee

Mr. Shinwell: asked the President of the Board of Trade what inquiries he made during his visit to Peterlee into the industrial needs of the new town; whether he is aware that few facilities for the employment of female and disabled workers exist in the area; and what efforts are being made by his Department to attract light industries.

Mr. P. Thorneycroft: I am aware of the industrial needs of Peterlee. The two Government-financed factories which have been completed recently in Peterlee are expected to recruit a larger number of female workers than are at present registered as unemployed and will also provide employment for disabled persons in the area. A third small factory has recently been approved and the Board of Trade will continue to try to attract suitable light industry in step with the development of housing.

Mr. Shinwell: But is the right hon. Gentleman aware that at neither of the two factories, one of which is not yet started, will there be provided employment for disabled ex-miners and ex-Service men; that, in the main, female labour will be employed there? When the right hon. Gentleman was in Peterlee the other day—I do not know whether he stopped there—did he make inquiries about the industrial needs of that area? Will he not do something for this new town?

Mr. Thorneycroft: I did have the opportunity of visiting Peterlee for a short time a few days ago. I saw these two factories and went into one of them.


There are 1,819 workers in Peterlee registered as disabled, and 79 of them are at present unemployed. I shall bear in mind their interests as well as other interests in that area in trying to encourage new factory development there.

Embargo List (Re-exports)

Mr. Sorensen: asked the President of the Board of Trade what evidence he has to show that exports prohibited from export to certain countries are nevertheless being exported to countries not on the embargo list and then re-exported from these to those on the list.

Mr. P. Thorneycroft: While it is probable that some such re-export takes place, I have no evidence that the purpose of our controls is being frustrated to any material extent.

Mr. Sorensen: Does not the right hon. Gentleman appreciate that it is very necessary to try to discover whether by indirect routes some of these materials are in fact reaching the countries on the embargo list? Is he aware, in particular, that a good deal of rubber goes from Czechoslovakia and other countries and that there are bitter complaints in Malaya and Hong Kong that they have lost their trade?

Mr. Thorneycroft: The hon. Member is quite right in saying that we ought constantly to watch, where we have strategic controls, to see that they are enforced as far as they can be enforced. He knows that we have various arrangements for trans-shipment and transaction control designed to secure that end. I am by no means saying that they are perfect or that the arrangements are completely watertight, but we do our best to see that they are properly observed.

Factories, Wales

Mr. Gower: asked the President of the Board of Trade if he will make a statement on prospects of future factory development and the erection of new factories and extensions of existing factories in the principality of Wales.

Mr. P. Thorneycroft: Nearly 2½ million sq. ft. of industrial building were approved in the 12 months ending 30th September, 1955, but it is not possible to forecast the rate of construction.

Mr. Gower: Is my right hon. Friend devoting particular attention to the case of factories which are merely branches of factories in other parts of the United Kingdom?

Mr. Thorneycroft: The general level of building is keeping up very well in South Wales. I have no figures here to show how many are branch factories.

Mr. Shinwell: Is the right hon. Gentleman aware that his hon. Friend the Member for Barry (Mr. Gower) is getting far more for his constituency than I am getting for mine?

Mr. Thorneycroft: We will see that Peterlee gets a fair deal as well.

Mr. C. Hughes: Is the right hon. Gentleman aware that the area in Wales where factories are urgently needed is that of the counties of Caernarvon and Anglesey, in particular, where unemployment is running about 7 to 8 per cent.? Will he not redouble his efforts to induce industrialists to enter these areas as soon as possible?

Mr. Thorneycroft: The hon. Gentleman has on a number of occasions made very forceful representations to me on the particular problems of those areas. They have raised problems which are a little different from those of the Development Areas which I have been discussing in answer to the Question.

South America

Mr. Gower: asked the President of the Board of Trade if he will make a statement upon current trends in trade with South American countries; and what proposals he has for facilitating the growth of this trade.

Mr. P. Thorneycroft: Our exports to the dollar countries of South America have been gradually increasing. In the non-dollar countries there has been no significant change in our total exports during the last three years. The Government's policies for reducing inflation at home are designed to stimulate growth of our exports as a whole, and the Government's general services to exporters are fully available to facilitate trade with South America. In addition, the Dollar Exports Council, with the Government's support, includes the dollar countries in this area within the scope of its activities.

Mr. Gower: While thanking my right hon. Friend for that reply, may I ask how far the ability of such countries as the Argentine and Brazil to purchase from this country has been affected by the recent reduction in our coal exports?

Mr. Thorneycroft: No, Sir, not without notice.

Mr. Stokes: Would the Minister state in figures what "gradually" means in the case of the Argentine?

Mr. Thorneycroft: I will let the right hon. Gentleman have the figures.

Mr. Bottomley: Although there has been an increase in the figures, can the right hon. Gentleman state how they compare with those for 1952–53–54?

Mr. Thorneycroft: If the right hon. Gentleman will put down a Question asking for the figures of the particular years which he wants, I will at once give him any figures he requires.

Mr. K. Thompson: More to the point, can my right hon. Friend say what steps we are taking to increase our exports to those countries and what special negotiations are being held either with the Argentine or Brazil at present?

Mr. Thorneycroft: If my hon. Friend will look at the Answer, he will see that the main purpose of our policy at present is to reduce the inflation at home in order that we may export more abroad. If I may say so, it is very much to the point to follow out an internal policy of that kind rather than to hope to increase trade by bilateral negotiations outside.

Dried Grass

Mr. G. Brown: asked the President of the Board of Trade whether he is aware that dried grass is currently being imported into this country from Canada; and whether he will state the quantity and expenditure in dollars estimated as likely to be incurred on this account.

Mr. P. Thorneycroft: No, Sir. I can trace no record of any recent imports of dried grass from Canada, nor have I any record of an import licence having been issued. The second part of the Question does not therefore arise.

Mr. Brown: Is not this extraordinary? I wonder whether the right hon. Gentleman will check the answer again? There is now a ship in Aberdeen from which dried grass is being sold for £39 10s. a ton. At the same time Mark Lane was yesterday quoting forward deliveries of dried grass from Canada at £36 12s. a ton. As this is using 100 dollars a ton to replace a home product—a product which used to be grown here but the growing of which is now dying away—does not the right hon. Gentleman think he ought to be active about this?

Mr. Thorneycroft: I will certainly be active about it and will follow up the information the right hon. Gentleman has given me. My information is that dried grass is not being imported, and the only comparable import which I can trace is that of alfalfa hay, which was a gift for a racehorse.

Mr. T. Williams: May I ask whether the right hon. Gentleman's first statement was correct—that dried grass cannot be imported without an import licence?

Mr. Thorneycroft: I think I said "from Canada."

Mr. Brown: In view of the President's remarks about a gift for a racehorse, may I ask whether he is aware that the shipload in Aberdeen to which I referred is being offered for sale at £39 10s. a ton and that the kind of quibble which he made does not help us in the misuse of our dollars?

Mr. Thorneycroft: There is no need for the right hon. Gentleman to get too indignant. I was indicating that my information related to something separate from that which the right hon. Gentleman has given me, and I have offered to look into the information which he put before the House.

Grain (Export)

Captain Corfield: asked the President of the Board of Trade what restrictions there are on the sale of English grain abroad.

Mr. P. Thorneycroft: Export is subject to licence, but at present licences are being issued provided there is evidence of a firm order.

Oral Answers to Questions — NATIONAL FINANCE

Public Services (Retirement Pensions)

Mr. Houghton: asked the Chancellor of the Exchequer whether he has now considered the representations of the Staff Side of the Civil Service National Whitley Council and the several organisations of retired civil servants regarding the hardship caused by rising costs to retired public servants; and whether he will make a statement.

The Chancellor of the Exchequer (Mr. R. A. Butler): Yes, Sir. I refer the hon. Member to the reply my right hon. Friend the Financial Secretary to the Treasury gave on 17th November to Questions by the hon. Members for Tynemouth (Dame Irene Ward) and Poole (Captain Pilkington).

Mr. Houghton: I noticed that reply, which was very welcome. May I now ask the Chancellor whether he proposes to consult any representative bodies before he places his proposal before the House?

Mr. Butler: I should want notice of that question. We are at present in the stages of finally preparing our plans.

Mr. Collins: asked the Chancellor of the Exchequer what representations he has received with regard to the need for an upward review of the pensions paid to persons formerly employed in the public services.

Mr. R. A. Butler: Representations have been received from many bodies, including the Public Service Pensioners Council, the Officers Pensions Society and the Staff Side of the Civil Service National Whitley Council.

Mr. Collins: Before the Chancellor announces his decision in response to these representations, will he have full regard to the fact that in terms of 1938, when their contributions were made, the £ is now worth only 7s. 8d., or less, and that many of these people are living in painful poverty through no fault of their own?

Mr. Butler: That is why the Government have so wisely given the answer on this subject which they have given.

Dame Irene Ward: asked the Chancellor of the Exchequer what proposals he now has for an increase in public servants' pensions.

Mr. R. A. Butler: I have as yet nothing to add to the reply my right hon. Friend the Financial Secretary to the Treasury gave the hon. Member on 17th November.

Dame Irene Ward: Is my right hon. Friend aware that when I refer to public servants I am now referring to ex-employees of the nationalised industries? Will he consult with the Ministers responsible to see that the position of all these ex-employees is looked at, bearing in mind that the view ought to be taken by the Government, in my submission, that small fixed income groups ought to be considered as a whole with a view to an amelioration of their position?

Mr. Butler: I can certainly undertake to consult my colleagues in the Government.

Board of Inland Revenue (Dismissal)

Mr. Fell: asked the Chancellor of the Exchequer (1) the reasons for the dismissal of C. M. Coldham by the Board of Inland Revenue on 14th April, 1955, to take effect from 22nd March, 1955;
(2) whether, prior to his dismissal by the Board of Inland Revenue on 22nd March, Mr. C. M. Coldham had been given the opportunity to state his point of view to a senior official of the Board of Inland Revenue other than the investigating officer;
(3) on whose authority members of the staff of the Board of Inland Revenue's Valuation Office, Great Yarmouth, were instructed early this year by an Inland Revenue investigating officer to obtain evidence about their superior, C. M. Coldham, without his knowledge; and to what extent this is normal procedure.

Mr. R. A. Butler: As Mr. Coldham was informed at the time, he was dismissed for serious irregularities in his claims for travelling expenses and subsistence allowances, which he did not deny; these of themselves precluded his retention in the public service. Mr. Coldham's own statements were recorded by the investigating officers and reported


to the Board, but he was not specifically invited to state his point of view to any other official. The steps taken in this case were justified in the exceptional circumstances.

Mr. Fell: Will my right hon. Friend agree that the reasons for the dismissal bore a very close relation to the charges which were brought against Mr. Coldham by the Board of Inland Revenue? Will he also state what was the result of those criminal proceedings? Does the Chancellor not realise that there is a settled procedure laid down to ensure that neither dismissal nor any other serious punishment is given unfairly, hastily or without due consideration of the civil servant's point of view? May I ask him whether he would conduct a full inquiry into the way in which these investigations were carried out?

Mr. Butler: Mr. Coldham was acquitted of a criminal charge. My hon. Friend knows that and need not have asked me the question. Dealing with the second part of his question, about procedure, I am satisfied that the Board of Inland Revenue could not, in the exceptional circumstances, have acted differently from the way in which they did act. I think their record shows over many years—and they have an immense staff—that they act with justice. Answering the third question, about an inquiry, I am not prepared to hold out any hopes to my hon. Friend, but if it would be of any assistance to him I should be ready, and I know the Chairman of the Board of Inland Revenue would also be ready, to see him and discuss the matter with him.

Mr. H. Wilson: Will the right hon. Gentleman suggest to his hon. Friend that when cases of this kind are to be raised in the House it would be a great deal better not to give publicity to the names of the individuals concerned but to furnish details separately and then to raise the matter as a general issue?

Mr. Fell: Is the Chancellor aware that these details have been furnished to the Chancellor? Is my right hon. Friend also aware, when he talks about exceptional circumstances, that I have been trying to find out for weeks and weeks what the exceptional circumstances were and that I could not do so? Can he say what the exceptional circumstances were?

Mr. Butler: In answer to the right hon. Member for Huyton (Mr. H. Wilson), that is a matter for the discretion of the hon. Member himself and it is usually better for the person concerned that names should not be mentioned. Will the hon. Member for Yarmouth (Mr. Fell) be good enough to put his point again?

Mr. Fell: I wanted to know what were the exceptional circumstances which justified Mr. Coldham being dismissed, rather than being suspended and subsequent action taken?

Mr. Butler: I do not want further to prejudice this case. I have offered that conversations can take place; but if I am to continue to answer public questions on this, it is fortunately most exceptional that a head of a department commits offences of this sort and then does not deny them when the facts have all been put before him.

Mr. Fell: In view of the unsatisfactory nature of the reply, I beg to give notice that I shall raise the matter on the Adjournment.

Cost of Living

Mr. Dodds: asked the Chancellor of the Exchequer if he is aware of the concern at the recent announcement that the cost-of-living index has been increased by two points in one month; and what action is being taken to restore the index to a similar position as that which applied in October, 1951.

Mr. Lewis: asked the Chancellor of the Exchequer what action he is taking to stabilise and reduce the cost of living in view of the fact that the cost-of-living index figure had risen by seven points from September, 1954, to September, 1955.

Mr. R. A. Butler: I am most anxious that the rise in the cost of living should be checked: but, as I have said many times, this cannot be done by Government action alone. The Government, for their part, have taken a number of anti-inflationary measures, of which the House is aware, and we are watching their effects carefully. But it is equally essential that all sections of the community should play their appropriate parts by increasing productivity, by reducing the prices of their products wherever possible, by exercising restraint in wages and dividend policies and by saving more.

Mr. Dodds: In view of the acceleration of price increases, will the Chancellor state what has gone wrong with the promise to stabilise prices and mend the hole in the purse? Will he take this opportunity to utter a few words of comfort to housewives who feel they have been badly let down?

Mr. Butler: I can only say that by our policies we reached a state of approximate equilibrium in this vital matter between 1953–54 for the first time for many years, and right hon. and hon. Gentlemen opposite would be the first to acknowledge that. It is also the case now that, owing to the increasing consumer demand and other reasons connected with inflation, which are in fact symptoms of our advanced prosperity, at the present moment we are undergoing a degree of inflation which we are attempting to cure. I hope that our policies will be crowned with the same success as after the first two and a half years of our Administration.

Mr. Gaitskell: While we all appreciate the Chancellor's difficult position in the light of what was said a few months ago, will he at least refrain from taking positive steps to increase the cost of living, for instance, through Purchase Tax increases in the new lists? Will he further follow the line he started last night in abandoning the increase in Purchase Tax on baskets and bags and abandon it on a lot of other things which he has brought into the Schedule?

Mr. Butler: The answer broadly, as is sometimes usual with the right hon. Gentleman's questions, is "No, Sir"; but I will undertake that we shall pursue our policies with a view to attempting to restore this equilibrium in the wage-price and other spirals which we have recently experienced.

British Petroleum Company

Mr. Roy Jenkins: asked the Chancellor of the Exchequer whether he will take steps to increase the number of Government-appointed directors on the board of the British Petroleum Company.

Mr. R. A. Butler: No, Sir.

Mr. Jenkins: Will the Chancellor not agree that it is thoroughly undesirable that this Government-controlled company

should flout the appeals for dividend restraint within a day of his having made them. What does he propose to do about that?

Mr. Butler: I was asked the specific question whether I would increase the number of directors and my answer was "No." The hon. Member's point, although important, raises somewhat wider issues which I cannot answer in reply to the Question.

Mr. Gaitskell: Can the Chancellor say whether he received any information from the Government-appointed directors that this increase of the dividend was contemplated? If so, what advice did he give to the Government-appointed directors?

Mr. Butler: There is a later Question on the Order Paper which I should not like to prejudice by an advanced answer.

Mr. Collins: asked the Chancellor of the Exchequer the date on which Mr. F. E. Harmer and Sir Gordon Munro reported to Her Majesty's Government the intention of the Board of Directors of British Petroleum Limited to declare an interim dividend eight times larger than the previous one.

Mr. R. A. Butler: I would refer the hon. Member to the reply given by my right hon. Friend the then Economic Secretary, to the hon. Member for Uxbridge (Mr. Beswick) on 27th November, 1952, when he said:
I regret that I cannot disclose information about communications which pass between Her Majesty's Government and their representatives."—[OFFICIAL REPORT, 27th November, 1952; Vol. 508, c. 610.]

Mr. Collins: Is the right hon. Gentleman aware that this grossly inflated dividend, coming only one day after he had made his Budget speech urging restraint in dividend and wage claims, makes nonsense of that speech when the dividend is declared by a Government-controlled company? Will he not, therefore, look at the matter again and say whether or not he did give any instruction to the Government-appointed directors?

Mr. Butler: No. I am not prepared to go further than my reply, and I do not think that any Government would be prepared to do so; but I am prepared to remind the hon. Gentleman of what the


Economic Secretary told him on 10th November—that in the light of the statement made at the meeting of the company in December we should suspend judgment until the total distribution for the year is known.

Mr. Gaitskell: To clarify the position, would the Chancellor say whether, as Chancellor, he does accept or does not accept responsibility for what the two Government-appointed directors do when they are members of the British Petroleum Company's board?

Mr. Butler: A certain practice has been followed for these directors by every Government since 1914. It is not to interfere in the commercial management of the company but to let them play their ordinary part as directors. The present Government directors are following the policy which has been followed by Government directors under every Government since that date.

Chinese Engineering and Mining Company

Mr. Roy Jenkins: asked the Chancellor of the Exchequer whether he has considered the Report of the Inspector appointed to inquire into the affairs of the Chinese Engineering & Mining Company Limited with a view to seeing whether there has been any infringement of the Control of Borrowing Order, 1947, in this case.

Mr. R. A. Butler: I am advised that it appears that there may have been an infringement of the Order, and I am making further inquiries according to the procedure prescribed by the Statute.

£ Sterling (Value)

Captain Pilkington: asked the Chancellor of the Exchequer, taking the value of the £ at 20s. in 1945, what was its value in 1952 and at the latest available date.

Mr. R. A. Butler: Taking the internal purchasing power of the £ as 20s. in 1945, it is estimated that the corresponding figure for 1952 is 14s. and for October, 1955, 12s. 8d. This estimate is based on the Consumer Price Index from 1945 to 1954 and the Interim Index of Retail Prices since then.

Captain Pilkington: Does that mean that under Socialism the value of the £ fell by 6s.?

Transferable Sterling (Exchange Rate)

Mr. Roy Jenkins: asked the Chancellor of the Exchequer to what extent he attributes the recent weakening in the transferable sterling rate to Egyptian payments to Czechoslovakia.

Mr. R. A. Butler: While there have been day-to-day fluctuations, to which I should hesitate to attribute any particular significance, I am not aware of any recent weakening in the rate of exchange for transferable sterling.

Mr. Jenkins: Is the Chancellor not aware that it was stated in informed quarters two or three weeks ago that the transferable rate was having to be supported by the Bank of England on the Zurich free market because of payments from Egypt for Czechoslovakian arms in transferable sterling? Is it not highly undesirable that his exchange policy has got us into the position of having to support these transactions?

Mr. Butler: No, Sir. As usual, I am very well advised and am aware of the source of the hon. Member's information, a notable periodical which both he and I read. As banker for the sterling area, it would not be proper to make observations on transactions of that sort. As I am responsible for the Exchange Equalisation Fund, I am not prepared to say whether we intervened or not.

Food Subsidies

Captain Pilkington: asked the Chancellor of the Exchequer the comparative figures of food subsidies, including agricultural deficiency payments, paid out by the Government in 1946, 1951 and 1954.

Mr. R. A. Butler: The food subsidies, including production grants and subsidies administered by the Agricultural Departments and by the Board of Trade, amounted to £335·3 million, and £427·1 million in the financial years 1946–47 and 1951–52, respectively. The corresponding figure for 1954–55 is estimated at £330·8 million, including the agricultural deficiency payments for fatstock and cereals which were introduced in July, 1954.

Government Departments (Paper Purchases)

Mr. Crouch: asked the Chancellor of the Exchequer what reduction has been made in the purchase of paper by Her Majesty's Government during the past six months compared with the previous six months.

Mr. R. A. Butler: Paper purchased in the six months to 30th September, 1955, was 555 tons less than in the previous six months.

Mr. Crouch: While I welcome this reduction, is my right hon. Friend aware that if he makes further reductions of one-third in the purchase of Government paper, he will not only save about £2 million in expenditure and 15,000 tons of paper, but release for industry a large number of people from the Civil Service and industry who could be employed on work more profitable than filling up forms?

Mr. Butler: At any rate, the trend has recently been in the right direction, although I am informed by my right hon. Friend the Postmaster-General that there is a poor outlook for paper, because telephone directories take up a great deal.

Retired Civil Servants (Re-employment)

Mr. Ridsdale: asked the Chancellor of the Exchequer whether he will amend Section 20 of the Superannuation Act, 1834, under which the pension of a retired civil servant is suspended during his re-employment.

Mr. R. A. Butler: I am not prepared to make any fundamental change in this Section. The Royal Commission on the Civil Service has considered a minor change and its recommendation—in favour of the status quo—will be considered along with the Commission's other recommendations on Civil Service pensions.

Mr. Ridsdale: Is not my right hon. Friend aware that many retired civil servants are finding it necessary to seek re-employment at a lower level, and that Section 20 of the Superannuation Act, 1834, is not in keeping with the conditions of 1955?

Mr. Butler: I am aware of it. The hon. Member will be aware that the

Superannuation Acts were amended to enable a re-employed pensioner to earn up to five extra years of pensionable service in respect of his re-employment.

Armed Forces (Pensions)

Sir I. Clark Hutchison: asked the Chancellor of the Exchequer if the further measures which are under consideration to assist retired members of the public services will also cover retired members of the Armed Forces.

Sir J. Lucas: asked the Chancellor of the Exchequer if he will re-examine the position of retired officers of the Fighting Services with a view to pension increases when the proposed increases for retired public servants take place.

Mr. R. A. Butler: The answer to both Questions is "Yes, Sir."

Sir I. Clark Hutchison: May I thank my right hon. Friend for that reply and ask him whether he can indicate when we may be likely to have a further statement on the proposed measures?

Mr. Butler: As the Financial Secretary said, we hope in the New Year.

Sir J. Lucas: Will the Minister remember that the pre-1950 pensioners have, in the main, fought in both wars and are worthy of special consideration?

Mr. Butler: Yes, Sir.

Hire-Purchase (Bank Charges)

Mr. G. M. Thomson: asked the Chancellor of the Exchequer if he will introduce legislation to prohibit charges being made by Scottish banks to hire-purchase customers for services rendered as agents of hire-purchase finance companies.

Mr. R. A. Butler: No, Sir.

Mr. Thomson: Is the right hon. Gentleman aware that people in poor circumstances who are paying a few shillings a week are having the payments raised by more than 25 per cent. in some instances, and that this is being done without their agreement or consent? Does he realise that the finance companies are not at all willing to adopt alternative forms of payment? Why on earth should not the banks make a normal charge to the finance companies in the same way as


they do to local authorities or to gas companies when they act as their collecting agents?

Mr. Butler: I am aware of the difficulty. The banks seem to charge 1s. a time. This is really a matter between the hire-purchase companies and their customers. In England, the difficulty does not arise because the hire-purchase finance companies are themselves customers of their English banks. A similar practice to that to which the hon. Member refers is, however, adopted in Ireland.

Mr. Woodburn: Can the right hon. Gentleman say whether this practice, which has occurred since he introduced his hire-purchase restriction policy, has any relation to that policy; and is it at his instigation that this further handicap has seen put upon hire purchase?

Mr. Butler: I am responsible for a great deal, but I really do not think that I have very much personal responsibility for this.

National Collections and Museums (Grants)

Mr. K. Robinson: asked the Chancellor of the Exchequer if he will consider making grants to the national collection and museums on a quinquennial basis in future, such grants to be administered by a committee appointed by him on the lines of the University Grants Committee.

Mr. R. A. Butler: The analogy with the universities is not close, and I am doubtful whether this suggestion would be practicable, even if it were acceptable to the national institutions as a whole.

Mr. Robinson: Is not the Chancellor aware of the widespread dissatisfaction with the present method and level of grants to these institutions, and does not he think that some suggestion like this might restore to the trustees of these institutions some responsibility for purchases and avert their having to go cap in hand to the Treasury every time they want to make an important purchase?

Mr. Butler: This was not the view of the National Standing Commission on Museums and Galleries which, in its Fourth Report, in 1954, thought that this sort of idea would not appeal to the institutions concerned. I am certainly

ready to consider any reasonable suggestion to help these institutions, but I do not think that it would help them if we adopted this proposition.

Mr. J. T. Price: Is not it the case that in all these transactions where objects of art are concerned, the knowledge of art dealers that large trust funds are available at any given time tends to increase the price of the pictures and other objects which are sold?

Wage Demands

Mr. Chapman: asked the Chancellor of the Exchequer whether he has considered the recent special statement of the Trades Union Congress, a copy of which has been sent to him, and which is critical of the impact of his economic and financial policy on wage demands; and whether he will make a statement.

Mr. R. A. Butler: I assume that the statement referred to by the hon. Gentleman is that which was in the Press on 24th November. I welcome this statement so far as it calls attention to the threat to our balance of payments, full employment and living standards, which is constituted by the process of "incomes" rising faster than prices. I cannot be expected to accept the criticisms of the measures which I have adopted to restrain what the statement describes as "the excessively high level of demand at home."

Mr. Chapman: But does not the Chancellor see that his Budget and the extra-budgetary measures recently introduced are making absolutely impossible the position of responsible trade union leaders with their eyes on the dangers of wage demands giving us uncompetitive prices abroad?

Mr. Butler: I should have thought that trade union leaders, judging by the tone of this document, are sufficiently robust to stand up to every sort of difficulty. When they reflect that there has been less than a one-point rise in the cost-of-living index due to the Purchase Tax proposals, I do not think it can be said that this is the sole cause of their difficulty.

Tax Allowances (Publicity Lunches)

Mr. Daises: asked the Chancellor of the Exchequer whether expenses incurred at publicity lunches by book


publishers are allowable under tax regulations as expenses for Income Tax purposes.

Mr. R. A. Butler: Such expenses are allowable if incurred wholly and exclusively for the purposes of the trade.

Mr. Daines: Does not the Chancellor think it very regrettable that occasions of this sort should be used to glamorise crime, even if the occasion is graced by the presence of Lady Docker and her husband?

Mr. Butler: I am not prepared to go into particular tax matters or particular personalities. I will therefore make no observation upon the hon. Gentleman's supplementary question.

Mr. H. Wilson: Is not the anomalous situation due to the fact that under the law which has existed for many years the Chancellor's phrase is "wholly and exclusively" and not "wholly, exclusively and necessarily" which would apply to the Income Tax assessments of all hon. Members of this House and all individuals charged upon a professional basis? Is it not a further fact that, by and large, it is the decision of the company concerned and not of the Inland Revenue which determines whether these payments are to be regarded as being wholly and exclusively for the purposes of the trade?

Mr. Butler: The company decides about undertaking a function, but the Inland Revenue always has its opportunity of interpreting Section 137 of the Income Tax Act. 1952.

Oral Answers to Questions — MEMBERS OF PARLIAMENT (OFFICES OF PROFIT)

Major Anstruther-Gray: asked the Prime Minister whether he can now state the result of the Treasury Circular requiring all Departments to review their lists of office holders with reference to their membership of the present House of Commons.

The Prime Minister (Sir Anthony Eden): Returns from Great Britain and Northern Ireland Departments have now been received and fully examined. The House will, I am sure, be glad to know that no further action is necessary.

Major Anstruther-Gray: May we take it from that reply that no hon. Members of this House are likely to find themselves disqualified from membership unawares?

The Prime Minister: I hope so, Sir.

Oral Answers to Questions — MIDDLE EAST (ISRAEL)

Mr. Chapman: asked the Prime Minister what territory he has proposed should be ceded by Israel in order to secure peace in the Middle East.

The Prime Minister: I am not prepared to refine the replies I have already given on this subject.

Mr. Chapman: Will the Prime Minister at least make it clear that what he had in mind was probably mutual and slight territorial adjustments rather than the cession of territory by Israel in return simply for recognition by the Arab States?

The Prime Minister: If the hon. Member would glance at The Times correspondent's article from Israel yesterday, he may find some comments which may help a little bit in the elucidation of this question.

Oral Answers to Questions — NATIONALISED INDUSTRIES (SELECT COMMITTEE'S REPORT)

Mr. Donnelly: asked the Prime Minister if he will move to amend the order of reference of the Select Committee on Nationalised Industries in order to enable the Committee to perform the function for which it was set up.

Mr. Grimond: asked the Prime Minister what further proposals he has to establish better Parliamentary control over the nationalised industries in view of the recent Report of the Select Committee; and if he will make a statement.

The Prime Minister: The circumstances arising from the Special Report of the Select Committee are under consideration. A statement will be made in due course.

Mr. Donnelly: Will the right hon. Gentleman bear in mind the specific point which made the position of the Select Committee impossible, namely, the


stumbling block of the day-to-day administration? It is essential that this should be cleared up.

The Prime Minister: Yes, I will bear that in mind.

Mr. Renton: Is my right hon. Friend aware that the Select Committee was set up by the last Parliament, which stated its terms of reference, that we have already gone some way into this Parliament without the Select Committee being able to do anything, and will he therefore bear in mind the need for dealing with this matter with reasonable dispatch?

The Prime Minister: We have just had this Report brought to the attention of the Government, and I hope that we shall be making an announcement about it very soon.

Oral Answers to Questions — BRITISH RAILWAYS SUPER ANNUITANTS (LETTER)

Dame Irene Ward: asked the Prime Minister what answer he has sent to the letter from Alderman G. O. Williams who wrote as chairman on behalf of the British Railways Superannuitants Association about superannuitants' pensions.

The Prime Minister: I am sending my hon. Friend a copy of the reply which has been sent to Alderman Williams' letter of 12th November.

Dame Irene Ward: Whilst thanking my right hon. Friend for answering that Question himself and not transferring it to some other Minister—[Laughter.] well, it was a very nice thing to do—may I ask him, in the interests of ex-employees of the nationalised industries, whether he will join with the Chancellor of the Exchequer in consulting the Ministers responsible for those industries in order that we may try to get something for these ex-public servants which will result in an amelioration of their conditions caused by the various difficulties of present-day living?

The Prime Minister: As a result of this Question, I have looked into the matter and, as I think the supplementary question shows, it is rather a complicated one. However, I am sending the hon. Lady a copy of the answer I have sent.

Mr. J. Harrison: Will the Prime Minister consider publishing in the OFFICIAL REPORT the gist of his letter regarding this matter, because there are many other hon. Members interested in it?

The Prime Minister: Yes, I will certainly consider that.

Oral Answers to Questions — OFFICIAL PRONOUNCEMENTS (HEADS OF GOVERNMENT)

Mr. A. Henderson: asked the Prime Minister whether he will take steps to ensure that official pronouncements containing personal criticisms of Heads of Governments are made at Ministerial level.

The Prime Minister: It is certainly desirable that important statements on behalf of Her Majesty's Government should not be made without proper authority. Ministers are already aware of this.

Mr. Henderson: Whilst agreeing that a correction of the assertions made by the Soviet leaders in their speeches in India was necessary, is it not most undesirable that a Departmental statement made by an anonymous official should contain personal imputations on the Prime Minister of another country, and are any steps being taken to prevent a recurrence of that?

The Prime Minister: This was an impromptu reply to a question, but, Mr. Speaker, perhaps the official concerned would have been wiser to have asked for notice. Personally, I think it is doubtful whether anyone but Ministers should be asked to make these impromptu replies. That is an aspect of the question which I think we ought now to consider. Even Ministers have sometimes to be careful.

Mr. Alport: Is my right hon. Friend aware that there are many people who welcome this return to robustness on the part of the Foreign Office?

The Prime Minister: I will be very careful not to deal with the merits of the answer at all. It is just a question of whether an official should be put in the position of making an impromptu answer of this kind, and my view is that, on the whole, he should not.

Mr. Paget: Is it correct that Marshal Bulganin informed an astonished Indian audience that we had sent Hitler's divisions to invade them, and does not that sort of observation call for comment?

Mr. Speaker: I do not think that the Prime Minister can be held responsible for what Marshal Bulganin says in India.

Oral Answers to Questions — UNITED KINGDOM AND CHINA

Mr. Emrys Hughes: asked the Prime Minister if he will discuss with the Prime Minister of China the possibility of an interchange of good will missions led by the Prime Ministers of both countries.

The Prime Minister: It has been the constant policy of Her Majesty's Government to work towards an improvement of relations with the Government of China. But I do not think that the time has yet come when it would be appropriate to pursue this particular idea.

Mr. Hughes: Does the Prime Minister not realise that if he decided to go on a good will visit to China and took the Chancellor of the Exchequer with him the House would be pleased to give leave of absence? Is he not also aware of what seems to be the highly successful visit of Marshal Bulganin and Mr. Khruschev to I ndia—[HON. MEMBERS: "Oh."]—and why should all the imagination and all the initiative—[Interruption.] All this interruption does not worry me. [HON. MEMBERS: "Go on."] Is the Prime Minister aware that the visit of Marshal Bulganin and Mr. Khruschev to India appears to have been successful in promoting better—[HON. MEMBERS: "Oh."] It does not matter, I am not afraid of hon. Gentlemen opposite. Is the Prime Minister aware that the highly successful visit of Marshal Bulganin and Mr. Khruschev to India gives one the impression that if the right hon. Gentleman went to China he would help to promote good will—

Air Commodore Harvey: On a point of order—

Mr. Speaker: Order, order. I do not know what all the noise is about.

Air Commodore Harvey: A few moments ago you gave a Ruling that a similar question to the Prime Minister

on the Russian visit to India was out of order. The hon. Member is now repeating it.

Mr. Speaker: That was quite a different thing. As far as I could hear him, the hon. Member for South Ayrshire (Mr. Emrys Hughes) was asking the Prime Minister if he was aware of something. That is quite a different matter from what somebody said.

Mr. Hughes: Is the Prime Minister aware that what seems to be the highly successful visit of Marshal Bulganin and Mr. Khruschev to India has resulted in possibilities of greater friendship and greater trade between Russia and India, and does he not think that a visit of this kind might improve not only international friendship but trade between this country and China?

The Prime Minister: I do not think it would be for me to pronounce upon the visit of one Head of Government to another Head of Government. It is for them to form their own judgments. If I were the hon. Gentleman, I think I would have some reservations about my conclusions on it.

Mr. Hughes: That does not answer the question.

Oral Answers to Questions — SECURITY (CONFERENCE OF PRIVY COUNCILLORS)

Mr. Daises: asked the Prime Minister if he will now undertake to inform the House of recommendations of the Conference of Privy Councillors on public security relating to the tightening of existing security precautions.

The Prime Minister: Successive Governments have communicated to the House those features in their security policy which can be disclosed consistently with the public interest. If as a result of the Conference any changes in that policy are adopted, we shall follow this practice.

Mr. Daines: Is the Prime Minister aware that there is a complete discrepancy between his statement in the House and the statement made by Lord Woolton in the other place? If the answer of the right hon. Gentleman today means that he accepts the answer of Lord Woolton as being on behalf of the Government. I am prepared to accept it.

The Prime Minister: I would rather accept my own answer.

Mr. Bellenger: Does the Prime Minister recollect that this conference was only arranged owing to the disturbed feeling amongst hon. Members of this House and the public outside, and although we cannot ask the Prime Minister to disclose the security arrangements of Her Majesty's Government, nevertheless the House must look for something tangible to come out of this Conference—and to be reported to this House too.

The Prime Minister: We have explained this before. A number of steps have been taken. Of course it will be open to the Conference to look into those steps and to consider if it wishes to add to them. If there are steps which can be made public as a result of that Conference, of course there will be a report to this House; still more so if there should be any steps that require legislation. But all that is hypothetical at the moment.

Mr. C. Pannell: In any inquiries that may be made into this matter, will the Prime Minister keep firmly in his mind the spirit of equity, namely, that there shall be equity between officials in the Foreign Office and especially fitters on the factory floor, who have been disadvantaged in all the security arrangements up to now? Had there been security arrangements in the Foreign Office comparable with those which the Ministry of Supply has inflicted on members of my union, this episode would not have occurred.

The Prime Minister: I think we all have in mind that what we want to get from this effort is to ensure that nothing like we have experienced shall ever happen again. It is a little difficult to make some of the comparisons which the hon. Gentleman has just made.

INDICTMENTS (AMENDMENTS)

3.30 p.m.

Mr. Hector Hughes: I beg to move,
That leave be given to bring in a Bill to amend the law of criminal procedure relating to the preferment of indictments.
I expect that the Bill will have the support of all parties in the House and of all hon. Members, because it is useful, nonparty, short, simple, and designed to prevent obvious injustice of a very grave character. A few years ago the present learned Attorney-General strongly supported the principle embodied in the Bill. In the ten minutes that are available to me I shall do my best to outline very briefly the problem with which the Bill deals.
Under our system of law a person accused of a crime, has, among others, three elementary rights: first, to be deemed innocent until he is proved guilty; secondly, to know exactly the charge against him; and, thirdly, to defend himself against that charge. The Bill deals with the second and third of these rights, which are not at the moment fully and clearly protected. At present, a loophole exists in our law by means of which a prosecuted person may be brought to trial without being told the exact charge against him and without having a full opportunity of defending himself against that particular charge or of getting legal advice directed to it. He may, therefore, be made the victim of an injustice.
The Bill is designed to close that loophole by enacting that every accused person shall be entitled, as of right, to a copy of the indictment against him at least five days before his trial. The need for this rectification of the law was recognised by the present Attorney-General when he was in opposition, and I hope that he will recognise it now that he is in the Government. It was recognised by the authoritative "Modern Law Review" so far back as July, 1954, in a learned article by Mr. Peter Solomon, a member of the Bar, who recommended the very improvement which I am now suggesting. It is recommended by practitioners in the criminal courts and by the twelve hon. Members of this House—all lawyers—who support me in it.
The present position is that when a person is charged with a serious crime he comes first before a magistrate who, if he finds that there is a prima facie case, sends the person for trial to a higher court. For the purpose of bringing the accused before that higher court the prosecution prepares an indictment, which is a legal document charging the person named in it with one or more crimes which are therein specified. It is here that the injustice which the Bill seeks to prevent may arise. The indictment may, without notice to the accused, include other offences in addition to that with which he was charged before the magistrate. If that happens—and it has happened—the accused may be taken by surprise and prejudiced in his defence. He may come to court to defend himself on one charge and at the very last moment, find that he is charged with another offence.
It is, therefore, essential that every accused person should be supplied with a copy of the indictment at least five days before his trial, so that he may seek legal advice, prepare his defence, and bring the appropriate witnesses in support of that defence. At present, there is no obligation upon the prosecution to tell the accused that another charge has been added to the indictment or to give to the accused, in advance, a copy of the indictment. The absence of this obligation tends to defeat justice. The absence of notice to the accused; the element of surprise; the absence of opportunity to prepare a defence and to obtain skilled advice and the absence of opportunity to obtain witnesses, all tend to defeat justice.
There are two wise and sensible aphorisms. Not only must justice be done, but it must appear to be done—and the accused must be deemed innocent until he is proved guilty. Neither of these is fully observed as the law stands at present. I am sure that the House will agree that it is abhorrent that a person should be put into the dock for one offence and be indicted for an additional offence without being given notice that that additional offence is about to be preferred against him. It is not enough that the accused should have a general notion of the offence with which he is charged; he should have a specific notice of the

actual offence upon which he is to be tried. Some offences carry a light sentence and others a heavy one.
The kind of thing of which I complain is the negation of justice and is repugnant to our system. My small Bill will cure this defect. As I have said, the present Attorney-General thought as I did in 1948. On 15th April of that year, when the Criminal Justice Bill was before Parliament, the right hon. and learned Gentleman then moved a new Clause to embody the very principle which is embodied in my Bill. I have the new Clause here, but I shall not trouble the House with it. In support of his Amendment, the right hon. and learned Gentleman then said:
The Attorney-General will probably agree that he has had the experience which I have had of defending an accused person, of being briefed, and knowing what the charges are according to the brief, and then being suddenly faced with an indictment read out and having to meet additional charges of a new character, charges added by the prosecution at the last moment, giving no opportunity to the defence to consider what course of action should be taken. That can be done under the present law and is done."—[OFFICIAL REPORT, 15th April, 1948; Vol. 449, c. 1199.]
In that debate six hon. Members spoke upon that new Clause. Five supported it, and the then Home Secretary opposed it, although he said that he would look into the matter and see that something would be done. Nothing has been done from that day to this. It is a surprising thing that such a loophole in our law should have remained during all those years. My Bill is designed to close it and see that justice is done. I hope that the House will give me leave to bring it in.

Question put and agreed to.

Bill ordered to be brought in by Mr. Hector Hughes, Mr. de Freitas, Mr. Anthony Greenwood, Mr. Glenvil Hall, Mr. Willey, Mr. R. Williams, Mr. Janner, Mr. S. Silverman, Mr. Hale, Mr. L. M. Lever, Mr. E. L. Mallalieu, and Mr. Weitzman.

INDICTMENTS (AMENDMENTS)

Bill to amend the law of criminal procedure relating to the preferment of indictments, presented accordingly and read the First time; to be read a Second time Tomorrow and to be printed. [Bill 76.]

Orders of the Day — FINANCE BILL

Considered in Committee [Progress, 28th November].

[Sir CHARLES MACANDREW in the Chair]

Orders of the Day — Postponed Clause 2.—(RATES OF PROFITS TAX, ETC.)

Motion made, and Question proposed, That the Clause stand part of the Bill.

3.41 p.m.

Mr. Roy Jenkins: We now come to a part of the Bill which is more complicated but perhaps less controversial than that which we have been discussing so far. The main provisions of Clause 2 are that the Profits Tax should be increased from 22½ per cent. to 27½ per cent, and that there should be a corresponding increase in the rate of non-distribution relief from 20 per cent. to 25 per cent.: so that the tax on distributed profits is increased by 5 per cent. and that on undistributed profits remains the same.
This Clause is much more acceptable to myself and to my hon. Friends than the provisions which we have been discussing up to now. It cannot be denied that, given the fact that the Chancellor was to bring in this autumn Budget and the particular fact that he was going to impose extra burdens on a wide range of articles, it was right and essential that profits should bear an additional imposition. We have to remember as a background to our discussion of Clause 2 that, as far as we can tell from the published figures, dividends in general, and not merely those of the British Petroleum Company, which stand almost in a class by themselves, have been rising very fast. The figures which have appeared this year show a rate of distribution 20 per cent. above that of last year.
As time goes on and we see more published figures, the rate of increase in the rate of dividend distribution, compared with the relevant period of the previous year, begins to be more and more. This year is 20 per cent. up on last year, which itself was very near 20 per cent. up on the previous year. It is no longer a question of once-for-all increase from a comparatively low stabilised level to a higher level, but of a

continuing increase over high levels previously recorded. A new imposition on profits was, therefore, very desirable.
I hope that in discussing the Clause the Chancellor will not attempt to make us believe that as a result of his financial policy throughout 1955 there is no additional net burden upon profits from companies. So far from that being the case, there will be a small additional net gain from the two Budgets of this year taken together. We note from the figures which the Chancellor has given us, and I imagine that the figures stand, that the amount which companies gained from the Income Tax concession last April was rather more than £40 million in a full year, whereas the amount that they will lose under the new Profits Tax imposition is a little less than £40 million.
Furthermore, we have to realise that there was a period between the April Budget and the present Budget in which companies will have borne neither Income Tax at the old standard rate of 9s. in the £ nor the new, increased Profits Tax. While the provisions in Clause 2 make the Budget somewhat less unacceptable than it would otherwise be, I hope the Chancellor will not try to represent that extra burdens are placed on companies by the two Budgets this year such as are placed on a very wide range of articles by the increase in Purchase Tax.
3.45 p.m.
We have to consider whether the changes which are being carried out are being done in the most desirable way. I am always a little nervous of the Chancellor's playing about with company taxation because we rather expect a similar sleight of hand to that which he performed over the Excess Profits Levy in 1952–53. The tax was brought in as part of the newly-elected Government's policy of equality of sacrifice and was to realise £200 million a year, but underneath it the Profits Tax was reduced, to the extent of £100 million in a full year. The E.P.L., as we said at the time, was a very bad tax. The Chancellor had to get rid of it after a year, but when he did so he did not put back the Profits Tax which he had removed. There is inevitably a slight suspicion of what the Chancellor is doing in the Bill.
Assuming that the Chancellor had to repair some of the damage which he did


to company taxation in April, the question is whether he has done it in the best way by this change in distributed Profits Tax. In considering the matter, we must bear in mind, whatever our views may be, that the Chancellor has gone directly against the recommendations of the majority Report of the Royal Commission on the Taxation of Profits and Income. He would not find much support in what the minority Report has to say either. The majority Report was very firmly opposed to the existing degree of differentiation between the tax on distributed and undistributed profits. The men who signed that Report cannot welcome the fact that in the very year in which they produced it the Chancellor has still further widened that gap and has apparently taken no notice of what they said.
I would not accept many of the recommendations of the majority Report of the Royal Commission and, in particular, I would not accept the premise upon which they built many of their recommendations on the subject of Profits Tax. Perhaps the Chancellor is being a little hard on these Commissioners, who laboured over long years to produce this very exhaustive Report. In the very year in which they produce it he introduces two Budgets, the second of which takes no notice of the Commission's recommendations—flies directly in the face of them—and because of the way in which the Financial Resolution is drawn, we are unable to bring before the Committee in the discussion on either of those Budgets any recommendations of the majority and of the minority Reports of the Royal Commission, while the Government provide no time to debate the matter outside the discussions on the Finance Bill.
As the Chancellor is asking us to accept a tax change which flies directly in the face of the Royal Commission's majority Report—and I would not say that he is wrong in that—and as he is giving neither the Committee nor the House any opportunity to consider these extremely important recommendations, I would ask him to give an assurance that he will consult the Leader of the House and set aside a very early date on which to debate them. It is really very undesirable that recommendations of this sort, brought out after a great deal of work, should be lying around for nearly nine months without

anyone, apparently, taking any notice of them, and without the House having an opportunity to express its views. It cannot be encouraging to those who put in such hard work on reports of this kind.
Looking at the change in Profits Tax, one can at least question whether, in present circumstances, the House should not have been allowed to consider an increase in the rate of undistributed Profits Tax as well. I am not sure, after the experience of the last two years, that a high distributed Profits Tax is a very effective bar to high dividend distributions. With undistributed profits we are in a different situation from that when we discussed those matters some time ago.
It is quite clear that, over the last few years, companies, broadly speaking—there are, of course, always exceptions—have not had any difficulty in finding money to finance their investment projects. That was before the Chancellor's recent change of policy on investment matters, but it must be clear, now that the Chancellor is contemplating a general restriction of the volume of investment throughout our economy, that the broad range of companies are to have in their hands cash considerably in excess of what they would need to spend if they fulfilled the right hon. Gentleman's request to cut down investment projects.
One of our worries about the general way in which the Government are at present carrying out their investment restrictions, is that far too much of the weight will fall on the public rather than on the private sector. Believing, as he does, in fiscal aids, the Chancellor should have considered whether, by making companies a little short of money and taxing them a little more on non-distributed as well as on distributed profits, he could not have made effective his policy of investment restriction, and have done something to ensure that the restrictions were more evenly and fairly shared between the public and private sectors of industry.
Another difficulty about Profits Tax as it now operates—and it is the old difficulty mentioned by the Royal Commission, and which, I know, will be familiar to the Chancellor—is that of preference dividends. On the whole, the Profits Tax has a good deal to be said for it, but there can be no doubt that its present


operation is unfair to companies which—largely, perhaps, by historical accident—have a high volume of preference share capital. An increase in the standard rate of Income Tax as it affects companies is not unfair.
If there is an increase in the standard rate, the preference shareholder bears it just as much as does the ordinary shareholder. He gets the same gross, but a smaller net, dividend, because he pays more tax on the amount he receives. If there is an increase in distributed Profits Tax, such as we are now considering, that does not happen. The preference shareholder gets the same gross dividend and, because the standard rate of Income Tax remains the same, the same net dividend, but the distributed Profits Tax on the money he receives has to be paid, and is paid, by the ordinary shareholder, who pays the tax both on the portion of the profits accruing to him and on that portion accruing to the preference shareholder.
That is a real difficulty and a real anomaly. It applies particularly strongly in the case of companies that have a large amount of preference share capital, and the substantial profit-sharing schemes which the Prime Minister and the Chancellor six months ago told us they were anxious to encourage. Although hon. Members had tabled an Amendment dealing with that, it was ruled out of order, but I hope the right hon. Gentleman will turn his mind to this, because it looks as though his present action runs counter to what he and the Prime Minister said six months ago. If a company is putting a large part of its nominally-owned capital into the form of preference shares, and devotes a large part of its real equity capital to profit-sharing schemes, it does very badly under the present arrangement.

Mr. J. T. Price: On a point of order. A number of my hon. Friends are in some doubt about the course you are pursuing, Sir Charles. Are we to take it that the Amendments to Clause 2 have been declared out of order?

The Chairman: Yes. they are out of order.

Mr. Price: We did not know that.

The Chairman: I proposed the Question, "That the Clause stand part of the

Bill," and I thought that every hon. Member knew by that that we had passed over the Amendments. We cannot go back again.

Mr. Jenkins: When my hon. Friend intervened, I was about to say that companies at present do not create preference shares. When they raise new capital they do so by loan, either by debenture or by unsecured note. There are companies with too much loan capital. Preference share capital has much to be said for it, and I think it a pity to distort the capital structure of companies in this way. It is difficult to suggest a concrete solution of this, but before we can regard the Profits Tax as a satisfactory weapon—and it has many counter-balancing advantages—we should try to solve the preference share anomaly. For that further reason, I hope that the Chancellor may provide us with an opportunity to debate the Royal Commission recommendations.
Our general attitude to this change in the Profits Tax is, as I say, that in view of the position in which the Chancellor finds himself, in view of the new and grievous impositions which he has put on other sections of the community, an increase in the tax borne by capital profits is inevitable and highly desirable. Speaking entirely for myself, I think it might have been better and more satisfactory had the Chancellor in this, as in many other ways, swallowed his pride and restored the standard rate to its pre-April figure, instead of using this other device. Be that as it may, we welcome what he has done. We think that he could have gone some way further, particularly in the taxation on undistributed profits. He would have raised a little revenue there, and he could have avoided a lot of damaging and unpopular—

The Chairman: The hon. Member is now discussing an Amendment which is out of order. The Financial Resolution does not deal with undistributed profits.

Mr. Jenkins: I was applying myself to that provision in Clause 2 which raises the rate of relief on undistributed profits from 20 per cent. to 25 per cent. I submit, with great respect, Sir Charles, that I would at least be in order at this stage to make a few observations on the desirability or otherwise of subsection (1, b) remaining part of the Clause.

The Chairman: I do not think that that is so. The Amendment which I ruled out of order was to increase the tax on undistributed profits, but the Resolution deals with distributed profits only. The hon. Member is going beyond that. We can deal only with the points in the Clause.

4.0 p.m.

Mr. Jenkins: With great respect, Sir Charles, that is precisely what I am attempting to do. I am attempting to address myself to Clause 2 subsection (1, b), which reads:
twenty-five per cent. for twenty per cent. as the rate of any relief for non-distribution.
I am suggesting, tentatively, that there might be something to be said for having some other figure than 25 per cent.—possibly 23 per cent. or 24 per cent.

The Chairman: The hon. Gentleman cannot do that on the Question, "That the Clause stand part of the Bill." That is just the point.

Mr. Jenkins: I shall, of course, respect your Ruling most closely, Sir Charles, but I shall be surprised to discover that I am completely unable to discuss on this Question something which has been clearly written into the Clause

The Chairman: The hon. Gentleman can discuss what is in the Clause, but he cannot suggest something which is not in the Clause.

Mr. Hugh Gaitskell: With great respect, Sir Charles, surely my hon. Friend is in order to discuss whether or not the proposals in paragraph (b)—25 per cent. or 20 per cent.—are or are not reasonable; and I understand that that is what he is endeavouring to do.

The Chairman: I think the hon. Member was suggesting an alternative.

Mr. Gaitskell: Surely my hon. Friend can discuss the merits of the proposal in (b).

The Chairman: Yes, but he cannot put forward other proposals.

Mr. Jenkins: I think your Ruling, as clarified, fully suits my purpose, Sir Charles. I had almost finished the point which I was making when you intervened to give me your guidance.
There might be something to be said for the Chancellor considering a slight

increase in the rate of tax on undistributed profits. That might have saved him a good deal of difficulty in the past five Parliamentary days. We appear to be moving into rather calmer Parliamentary waters, however, and perhaps the Economic Secretary will again be able to read the Committee some of his engaging little economic essays. I look forward to them immensely. I think he should suit the length of his speeches to the length of an essay suitable for collection in a little book or occasional papers. I hope that he may be able to do this in the rather calmer atmosphere prevailing this afternoon. We look forward to a reply from the Chancellor or the Economic Secretary, or both, and we hope that they will deal with some of the points which I have raised.

Mr. John Arbuthnot: The hon. Member for Stechford (Mr. Roy Jenkins) suggested that the increase in Profits Tax on distributed profits was a good thing on the ground that dividends were rising. He said that dividends this year were 20 per cent. up on dividends last year. A point which hon. Members opposite always omit is that the earning power of dividends being paid today is less by one-third compared with the earning power in 1938.
Another controversial point made by the hon. Member was his reference to the extra net burden arising from changes in Purchase Tax. If we cast our minds back to the time when my right hon. Friend took over the job of Chancellor of the Exchequer, and the height at which the party opposite left Purchase Tax generally, there is no net extra burden from the impositions which my right hon. Friend has introduced. Purchase Tax is lower today than when we took office.
My right hon. Friend said last night that the subsequent Clauses in the Finance Bill raised just as much misgiving in some parts of the Committee as those with which we had dealt up to then. He was right. Although I personally will support the Clause increasing the rates of Profits Tax, because I regard it as part of the Budget as a whole, I want to leave no doubt in my right hon. Friend's mind that in my view the earliest opportunity should be taken to rectify what is now being done in the name of the need to combat inflation.
An argument which has been used in favour of an increase in the rate of distributed Profits Tax is that, having increased the rate of Purchase Tax, the Chancellor should make some increase in direct taxation as well. That was an argument adduced by the hon. Member for Stechford. To me it seems a complete non sequitur. Everybody pays Purchase Tax. The richer a man is, the more he buys and the more Purchase Tax he pays.
It does not follow that there should be this additional discriminatory attack against that section of the community which has followed the advice which my right hon. Friend himself gave when he encouraged such people to "invest in success" and to put their life savings behind Britain's productive drive. When he coined that slogan my right hon. Friend did not add, "Three-tenths of your profit is all that I will let you see." Nevertheless, that is the position. A company which distributes as fully as it can will give only three-tenths to its shareholders and the remaining seven-tenths will go to the Government in taxation. If that is not "the nationalisation of the means of production, distribution and exchange," it goes very close to it.

Mr. Jenkins: Would the hon. Gentleman say what he regards as the proper proportion of a company's profits which should go to the Government in present circumstances?

Mr. Arbuthnot: I do not think the present proportion is right, and I hope that my right hon. Friend will be able to review these emergency measures which he has found it necessary to take. I do not think it would be in order, on this question, for me to embark on the rather enticing field which the hon. Member offers.
I believe that the increase in the Profits Tax on distributed profits is bad for other reasons, too. It encourages businesses to plough profits back into their own industries when it may well be to the national good for them not to do so. It may well be that those profits would be better employed in the development of other enterprises.
Another difficulty raised by increasing the tax was mentioned by the hon. Member for Stechford when he referred to the way in which the Profits Tax

operates unfairly against a company with a large preference capital, since the equity shareholders must bear the whole of the Profits Tax. In this way, as the hon. Member pointed out, it distorts the normal processes of raising capital and encourages the issue of debentures when, were it not for this tax, preference shares would be just as good.
If a company cannot distribute reasonably to its shareholders, it becomes a sitting target for the take-over bidder, whose aim and object is to make a killing by breaking up the company. Surely that is not in the national interest. Furthermore, the tax is inflationary in so far as it removes from employers the incentive to resist undue wage claims.
A further point arises with respect to companies the majority of whose capital is foreign-owned, which escape Profits Tax on that capital. An increase in Profits Tax means that we give to these companies with a majority of foreign-owned capital a still greater advantage than that which they have at present over wholly British companies.
I hope I have said enough to show my right hon. Friend that many people who have the broad national interest very much at heart are profoundly disturbed by the increases in the tax on distributed profits. That tax is now higher than it has ever been in the history of our country. I hope I have said enough to persuade my right hon. Friend of the need to retrace this step at the earliest possible opportunity.

Mr. Austen Albu: I am very glad that the hon. Member for Dover (Mr. Arbuthnot) spoke in the way he did, because now we are back on the old familiar ground of difference between the two sides of the Committee as to what are the effects of taxation of companies on our economic life generally and also what are their effects on the equity of the distribution of the national income. I should have thought it extremely important to keep those two issues separate, although that is difficult when dealing with taxation of companies.
There is now almost general agreement, it seems, even in the majority and minority Reports of the Royal Commission on Taxation of Profits and Income, that companies cannot be treated as individuals or aggregates of individuals, or


merely as the shareholders when we are discussing the question of taxation of incomes. For a number of reasons, which I am sure would be out of order and boring to the Committee to go into now, companies have to be treated as separate entities subject to their own rules of taxation. I think that most people are now agreed that some form of Profits Tax, some form of taxation of companies, whether the profits are distributed or not, is probably one of the most satisfactory forms of obtaining for the Government that share of the national production—the national income—of the order which is needed for carrying out the purposes of government.
In this particular case, however, in this Clause it is not very clear to me whether or not the increase in distributed Profits Tax has been introduced for the purposes of what one might call justice or equity, in order to some extent to balance the severe impositions made on the ordinary mass of consumers, or whether it has been introduced for disinflationary purposes in order to have some restrictive effect on investment. I shall say a little more about that in a moment It was referred to by my hon. Friend the Member for Stechford (Mr. Roy Jenkins). Of course, it was always the argument of hon. Members opposite that when one imposed a higher tax on distributed profits that had an effect on the reserves of companies making it more difficult for them to continue to invest.
As to the first argument, that this Clause has been introduced to some extent to balance the undoubtedly inequitable provisions of Clause 1, I think that point was answered completely by my hon. Friend the Member for Stechford. Not only is the amount which is being taken back from companies far less than that which will have to be paid by ordinary consumers but, of course, if one takes the year as a whole the argument becomes ludicrous. It becomes even more ludicrous if one considers the whole course of taxation policy since this Government came into office. It would be found that the advantages given to companies and the wealthier section of the community throughout their period of office have been very substantial compared with those for the less well off and I do not think the attempt to provide a sort of psychological balance

has succeeded in any way. It certainly has not deceived very many workers or many of the ordinary electorate.
If, however, an increase in companies' taxation—this small increase—is intended to have a disinflationary effect, the arguments of my hon. Friend the Member for Stechford about the relationship between distributed and non-distributed Profits Tax apply. It is perfectly true that the relief for non-distributed profits was introduced by my right hon. Friend the Member for Bishop Auckland (Mr. Dalton) after the war—in 1946. That, of course, was a general relief for this purpose which is being maintained at present. But at that time I should have thought that the arguments for a very general relief were very much greater than they are today. One had quickly to get a large expansion of investment and, on the whole, we wanted it over a very large part of the economy and there were a number of physical controls to ensure that what took place was in the general public interest. These controls do not exist to anything like the same extent today. There was also the problem at that time of the enormous fall in the value of money which had taken place during the war and which made replacement of plant extremely difficult unless companies reserved money in their hands for that purpose.
4.15 p.m.
We know that that all took place. The plant was replaced and very substantial sums were acquired by companies out of profits. There were various measures in addition to non-distribution relief, such as the initial allowances, brought in by the Labour Government of that time. Now, however, the situation is very different. The companies have adequate funds and, in fact, the policy of the Government is to restrain their use of those funds. It is extremely difficult to see how the operation of the banks or the credit system or the operations of the Capital Issues Committee can have any real effect on the vast majority of established companies at present.
I am not one who wants to see a flattening down and a stopping of all investment, but it is true as the hon. Member for Dover said that so long as companies are free to spend their reserve funds as they like there is not control


over the nature of that investment. The hon. Member would like the money distributed as dividends and then presumably to depend for expansion on the operation of the market. Most of us on this side of the Committee think that under present circumstances that would be completely inadequate and that further controls are undoubtedly needed—controls which we think should be in the hands of the Government. It is true that the Government cannot exercise very much control over expansion of a very large section of the economy at present if they do not increase the taxation of undistributed profits or alternatively use some other means of controlling their investment.
It seems to me that there is a very strong conflict here. I fully realise that the whole question of taxation and Profits Tax of companies raises a large number of anomalies which arise out of the private ownership of capital. I know that what may be necessary for the economy and for the benefit of particular companies may be very inequitable from the point of view of particular shareholders in relation to the other shareholders or the community. This is one of the problems with which I do not think hon. Members opposite are likely to deal because they are not prepared to select as between one company and another and one industry and another. It is a serious problem, and I think that very soon we shall have to have a very full debate on this problem, based on the most majority and minority Reports of the Royal Commission, both of which made a number of most interesting and important points.
It is impossible on a single Clause in this Bill to discuss that matter because the whole question of company taxation and Profits Tax is related to a number of other taxes and to the question of capital gains, which we cannot discuss this afternoon. Nevertheless, the sort of difficulties which are indicated have been well brought out by my hon. Friend the Member for Stechford and the hon. Member for Dover. I hope, therefore, that we shall have an opportunity of a very full discussion such as in the context of a discussion of a single Clause or change in our financial arrangements cannot be embarked upon at present. I hope we shall get some idea from the Economic Secretary—not necessarily an economic

address, but some idea—of what is in the mind of the Government in introducing this increase of tax and whether they think of it purely as a matter of justice and an attempt to balance the Purchase Tax Clause and those changes, or whether it is that they believe it will have some effect on the economy generally and, if so, what? I think we ought to have a great deal more explanation of how this Clause and the changes in Profits Tax are related to the rest of the Bill.

Mr. Denzil Freeth: Before I address myself to the Clause, perhaps I may declare an interest in the subject of the Profits Tax. Everybody perhaps has one, but I happen to be employed by a stockbroking firm as part of the "paid help," or, more accurately, as one who is paid, and as the payment of higher dividends increases Stock Exchange turnover it might be argued that a higher rate of turnover may increase my annual bonus by an infinitesimal amount.
If I may take up again the point of the preference shareholder and the effect on the equity shareholder of the amount of the distributed Profits Tax that has to be paid out in respect of preference share dividends, I think that this can, in fact, be very onerous, particularly when we are increasing the distributed Profits Tax in the way in which the Chancellor has increased it in this Clause, and particularly where the preference capital is very large and the company itself is not very prosperous.
Even in times of prosperity, it happens that a company barely covers its preference share dividends, and if that happens and the dividend on the preference shares is barely covered or not covered at all and the company endeavours to maintain the dividend on the preference capital, it has to find from reserves a very much greater amount, since if it allows its preference shares dividend to lapse, it would undoubtedly on any future occasion find the raising of new capital almost impossible, while, if the preference shares dividend lapsed, it would upset the whole balance of voting power in a particular company. That means to say that the cost to the company of maintaining the dividend on the preference shares, when that dividend has not been earned and when we raise the tax on distributed profits in the way we


are doing in this Clause, can be particularly onerous.
The whole effect of the Clause seems to me to make a situation in which companies, while ostensibly equally free to make profits, are not equally free to distribute them. After all, as the hon. Member for Stechford (Mr. Roy Jenkins) said, the capital structures of these companies have grown up under many different types of taxation and in response to very many different types of economic conditions, and it has the most unfortunate effect, as my hon. Friend the Member for Dover (Mr. Arbuthnot) said, of encouraging or almost forcing companies to raise an undesirable proportion of their capital in the form of redeemable debenture capital, which, at the present time, under the "credit squeeze," has to be paid out of their funds on redemption.
Another factor is that any increase in the distributed Profits Tax gives companies an unascertainable liability in respect of profits which are retained and later distributed, possibly because profits sufficient to cover the dividend have not been earned in any particular year; and if that has an awkward effect in these conditions it has an additionally unfortunate effect should the company wish to go into liquidation, when, if the distribution of assets exceeds the paid-up capital and cash premiums of the shares, that surplus is again liable to the distributed Profits Tax.
One question which one has to ask oneself when it is proposed to increase the tax on distributed profits is whether distributed profits are less or more inflationary than undistributed profits. I was most interested in the speech of the hon. Member for Edmonton (Mr. Albu), since he seemed to be leading up to this sort of question. After all, distributed profits do represent savings and quite substantial amounts are saved, and I think that the proportion is likely to increase as the years go by, as a greater percentage of the equity shares of British industrial companies are held by pension funds, insurance companies and the like.
I think, also, that we ought to remember that retained profits—and this increase in the distributed Profits Tax does encourage the retention of a greater share of companies' profits—do not necessarily reduce consumption, and do not necessarily reduce demand, particularly at the

present time. They do not necessarily reduce the demand for those capital goods which at the present time are in very short supply. The ordinary shareholder, who has, presumably, bought equities in the hope that higher dividends will be paid from year to year in order to give some compensation for the falling purchasing power of the £, might then say "If I do not get an extra dividend from this company, I shall sell a few of my shares and live on capital to make up the difference, because if I do not spend that particular piece of capital today, the Chancellor will get it when I am dead."
Another question which we ought to ask, as a background to this, is whether retained profits are an overall national advantage. My hon. Friend the Member for Dover dealt with the problem of the way in which too high a tax on distributed profits naturally tends to encourage monopolistic tendencies in industry. After all, it is not necessarily axiomatic that profits which are retained by the company which earned them could not be put to more fruitful use elsewhere; and I would suggest that while we on this side of the Committee, in theory, at any rate, believe in free enterprise and capitalism—[HON. MEMBERS: "Only in theory?"]—we should always remember that capitalism requires mobility of capital just as much as a changing and expanding economy requires mobility of labour, and that where we have to freeze capital, inevitably we also freeze our economy.
If we accept, as, presumably, we all do accept, that capital investment in general is a good thing, is it advantageous for capital investment to restrain dividends, bearing in mind that, because of the inequality in the way in which the tax falls upon different companies, some companies are very much more affected than others? If a company which is, unfortunately, carrying a high proportion of preference capital wishes to raise new money it will find it difficult, as compared with a company with a low proportion of preference capital or none at all, when it goes to the market to raise the capital.
I think this tax also has a harmful effect in general upon the smaller companies. My right hon. Friend the Chancellor has said in his Budget speech that he thought the proposals of the Royal Commission would have a harmful effect upon the small company and the developing company, where, quite likely, the earnings


to cover the dividend were not as large as those of an established company. I think that the converse of that is equally true. The money which would be distributed in dividends by the larger company, if the tax on distributed profits was smaller, would be in the capital market and would be available for the small company to use when it made its new issue. At present, it remains in the hands of the big company, and the higher profits become the richer and the stronger does that company become, and it is then in an easier position to buy up the smaller companies competing with it in the same industry.
I think I might say that there are two other reasons why I do not take kindly to this increase in the Profits Tax, even though it has my right hon. Friend's blessing. First, it attacks only a symptom of inflation and not the root cause. High dividends can come only from high profits, which themselves are also an inflationary symptom. They might add to inflation, but certainly they are a symptom of it. The other reason is that to a very large degree this tax takes back the concessions which were given in April.
4.30 p.m.
I am well aware, as the hon. Member for Stechford said, that there is a slight gain on the credit side to companies by the reduction in Income Tax and the increase in distributed Profits Tax, but the effect of this can be very unequal. I was talking the other day to a director of a brewing company—[Laughter]—in a place, I might say, where one does not normally meet directors of brewing companies—when he said that the reduction in Income Tax in April was calculated to benefit his company to the tune of £14,300. It had been a company, like most breweries, which had paid out fairly fully and, like most breweries, its profits had not risen in line with the growth of profits in large industry.
But the increase in distributed Profits Tax which the Budget is taking away from that company is £14,400. The company, therefore, finds itself slightly worse off. I do not quite see that it is beneficial to industry in general that within six months money can be given to it and taken away again. [HON. MEMBERS: "Hear, hear."] Is there, then, a real justification for this tax, apart from the

natural desire of hon. Members opposite to "have a go" at the investor?
This is a fairly high increase. If one calculates the amount paid out in taxation, calculating it as a percentage of the net dividend, it increases the percentage tax on a net dividend from 142 to 161 per cent. The main justification must be to regard it as an interim measure, more psychological than financial. At an earlier stage of the Committee's proceedings I suggested that the main effect of the Purchase Tax upon exports would be psychological in that it would turn the mind of the manufacturer to the export market. Here again, the effect will be psychological rather than factual, because, as the Royal Commission pointed out, it has never been proved that a higher tax on distributed than on undistributed profits has altered the investment policy of any company when other forces were contending strongly.
On that justification, I accept as a psychological measure the restraining of dividend increases until the "credit squeeze" makes it unnecessary by making profits harder to earn. We must, however, realise that the increases in dividends which we have had, though proportionately substantial, are relatively small in relation to the total earning power of the country. In the Blue Book on National Income and Expenditure, one sees that in 1954 total personal incomes rose by £820 million while equity dividends rose by £89 million. That is not such a very large amount anyway, but quite a proportion of the £89 million has been taken back by the Chancellor in Income Tax and Surtax. I have seen only one calculation of the kind of proportion in which these are taken back—

Mr. Albu: I think that the figures quoted by the hon. Member are net figures and would not apply to Surtax. They are certainly net of Income Tax.

Mr. Freeth: I read them as being gross figures, and I apologise if they are net. It is not set out very clearly. Immediately beneath "Gross trading profits" comes "Payments of dividends and interest." I therefore assumed that as the word "net" did not appear and "gross" followed, they were gross figures; but I am quite willing to be corrected.
In any case, one thing at least is worth remembering in the minority Report of


the Royal Commission, when it says that even the doubling of all dividend payments, which would do no more than restore the pre-war relationship between dividends and earnings, would mean an increase of only about 2 per cent. on total consumer expenditure. Therefore, the increased amount of income that has been poured into the economy by dividend increases over the past two years has been exceptionally small.
The reason why I would vote for the Clause, should it be taken to a Division, is that it would be very wrong if the impression were to go forth from the House of Commons that hon. Members who have any connection with finance or industry were unwilling to play their share in a Finance Bill of this kind. My right hon. Friend the Chancellor of the Exchequer spoke last night about broadening the tax basis. It is, therefore, only right that industry and finance should pay willingly the share of the general burden which the Chancellor has called upon them to do. I hope, however, that it will not be long before my right hon. Friend will not only take back this increase which he has put upon us, but that he will allow the House to have an opportunity of discussing the recommendations of the Royal Commission, particularly those dealing with the tax on distributed and undistributed profits.

Mr. Douglas Houghton: The Committee has made a new discovery in the course of the interesting and informative speech of the hon. Member for Basingstoke (Mr. Freeth). We have discovered a new political phenomenon—the theoretical capitalist. We welcome this addition to a new kind of Fabian Society. I am sure that the Committee will wish to hear much more from the hon. Member about his new approach to Conservative philosopy in economics.
I do not, however, think that we ought to consider the Clause in its detailed effect upon the taxation structure, This is one of the two main Clauses in the Bill and both of them are, I believe, part of the Chancellor's psychological warfare upon inflation and are not really part of a box of tools to cope with it. The remaining two Clauses of the Bill are, so to speak, incidental. The general mass of the public would never have missed them had they not formed part of the Finance Bill, important as they may be.
My hon. Friend the Member for Edmonton (Mr. Albu) asked whether the Clause is the counterpoise to Clause 1. I think that it is. But both of them, taken together, are more of a warning note than grappling irons to deal with the problem of inflation. I might almost describe them as a foghorn in the mists and obscurities of Government economic policy. They sound all right and there is no doubt that they make a noise. The question is: what sort of noise do they make and what notice are people taking of them?
The speech of the hon. Member for Basingstoke, to which we listened with close attention, would not make the slightest impression upon a branch meeting of a trade union. It just would not be interested. It would be much more concerned with the general effect of the Bill upon the present economic situation through the impositions which are being made upon the consuming power of the great mass of the people.
My quarrel with the proposals in the Clause is that they are not strong enough. They sound a warning note, but it is not strident enough. I repeat, the proposals are part of the Chancellor's psychological warfare upon inflation. The Chancellor has moved to strike and has been afraid to wound. He hopes that the Bill's proposals as a whole will convey a warning of the danger of the situation, to bring about a change of atmosphere, and a new approach to consumer expenditure and to capital investment. He hopes that, in consequence, there will be a sufficiently strong influence upon the excessive expansion of the economy at the present time. We have to judge whether the proposals will succeed in fulfilling their purpose.
One great advantage the Chancellor of the Exchequer has is that after some days and weeks of discussion he can look at his policy afresh in the light of public reaction. The Chancellor, as we have frequently heard, has to go into purdah, as it were. Before introducing his Budget, whether in the spring or autumn, he has to use his best judgment, after taking all the advice—and there is not much—which is available to him in advance, on what the effect will be, and whether it will do the trick. After he has unfolded his proposals, and they


have been subjected to public and Parliamentary discussion he has to assess again the measure of success of his proposals, and whether they will turn out as he first hoped and believed they would. I think that, perhaps, in general Chancellors of the Exchequer owe it to the Committee to tell us what their second and third thoughts are, and whether they think their Budgets will turn out as they first hoped they would. This Budget has not made the impression upon the public or upon industry which the Chancellor hoped.
There was certainly a tendency in industrial profits and especially in the distribution of dividends which the Chancellor was right to check. While profits this year have been on the whole falling slightly, dividend distributions have been rising sharply. In the first quarter of this year, taking the figures of 583 companies, the increase in profits was 12 per cent. but the increase in dividends was 16 per cent.; in the second quarter, taking the figures of 1,000 companies, the increase in profits was 13½ per cent. but the increase in dividends was 24 per cent.; in the third quarter, taking 588 companies, profits increased by 10 per cent. and dividends by 27½ per cent.
That, I think, is a quite striking comparison between the steadiness of profits, but tending to fall slightly, and the sharp increase in dividends.

Mr. Freeth: Are those most interesting figures net? If so, there would be a natural increase on the reduction in Income Tax. Do those figures make any allowance for the dividends paid upon new money raised?

Mr. Houghton: No, I think these are gross figures, but they show the general tendency of distributions in comparison with profit earnings. That is a tendency which, I am sure, the Chancellor was right to check.
I was about to say that during this period wages have remained steady at only 7 per cent. above their levels for the corresponding periods of last year.
4.45 p.m.
I know that one can use figures until the cows come home to prove arguments. One could say, "The total amount of dividends compared with the total amount

of earnings is comparatively small. "One can argue that an increase in dividend distribution amounting to some millions but not many millions is really not inflationary, and that the effective demand on our resources, so far as purchasing power is concerned, comes from the great mass of the wage earners, the millions of them, to whom a wage increase of a comparatively small percentage represents hundreds of millions of pounds of additional purchasing power. All that I fully accept, but I come back to the point that in our democratic system, at a time when the trade unions have considerable power, when the workers are an enlightened body of people who are studying the economics and the social implications of our affairs, then psychology matters a lot. No Chancellor can afford to disregard that fact.
The Chancellor has merely scratched the surface. He has injected an irritant rather than a deterrent into the economic system. His additional 5 per cent., or increase from 22½ per cent. to 27½ per cent., tax on distributed profits will make very little difference to the resources available to companies after distribution. The Financial Times a little while ago gave some figures to show what a slight effect it would have. It said that the effect on earnings of leading companies would be between 1 per cent. and 2 per cent. only, and the names of some companies were mentioned to show what a slight effect it would have.
Everywhere one turns for comments on the Chancellor's proposals one finds that he can derive very little satisfaction from them—very little. Indeed, in this Committee the debate has lacked cut and thrust because the two sides have united in opposition to the Government, and that has been a most painful and discouraging experience to us on these benches, because we have had, as it were, nothing to bite on. Both sides have, from their different points of view, joined in criticising the Chancellor's proposals.
Will the proposals of this Clause do more than the Purchase Tax has done, do more than irritate and inflame opinion? Will they have the effect the Chancellor wishes? I believe myself—I speak personally, and my judgment may be of little value—that a sharper increase in the tax on distributed profits would have had a


bigger effect upon trade union opinion. It would have seemed that the Chancellor was attacking the distribution of unearned income more considerably, and that at the same time he was making accompanying impositions upon the purchasing power of earned income. I think the Committee will appreciate the very great difference between the two things in the eyes of the great mass of the workers.
They say of what the Purchase Tax affects, "This is our earned income. This is our toil and sweat. This is our overtime. This is our night duty. These are, in an enlightened age, necessities which are keeping the wheels turning." That is what the Chancellor is now taxing indirectly by increases in the Purchase Tax. They think of the dividend holder differently. A dividend may, of course, be a legacy of somebody else's toil and sweat. It may be the result of gains untaxed, some of them ill-gotten. It may be the result of an inheritance of money which the holder has done nothing to deserve. Indeed, the taxation system differentiates, by common consent, between earned and unearned income, and the Chancellor cannot complain, nor can this Committee, if people outside distinguish between the two kinds of income, especially when they see the discrimination which is made in the Income Tax system.
I believe that the Clause fails in its purpose on those counts. I think that is a great pity. One thing that I am anxious to do is to bring stability into our economy and restrain all elements that might upset it. That is fundamentally important. Anything that will assist to achieve that purpose is to be applauded from these benches. That is why I think that the Chancellor's proposals have not gone far enough.
I know that one has to look at this as part of the right hon. Gentleman's general strategy, and that this is not the complete picture. We fully understand that, but we have to discuss this as one element in the general situation. I am not sure that I agree with my hon. Friend the Member for Stechford that there is any particular magic in equalising or balancing up the restraint of investment in the private sector and investment in the public sector. It does not seem to me to matter very much whether investment is in the public sector or in the private sector. What really matters is what kind

of investment it is. That is the important question.
We do not want, even for psychological reasons and the effect on general opinion, to restrain valuable investment which may be essential to higher productivity and a rise in the national income later. What we want to do is to squeeze out of the system unproductive investment—and there is a good deal of it going on at present and quite a lot in the private sector—while the strain on the resources remains as great as it is; but this does not achieve that at all.
The Chancellor has made his job much more difficult by rejecting physical controls in a matter of this kind. Even economists of his own political way of thinking comment on that very fact. The Chancellor is trying to do by these blunter and indirect methods what could be achieved in the same direction more quickly and more surely by direct action. I am not saying for a moment that physical controls alone would do it—I do not believe that they would—but a combination of direct and indirect methods might. I am sorry to say that my verdict on this Clause is still unfavourable, after reflecting on it for some time since the Chancellor introduced it. I do not think that this is the moment for the Chancellor to recast the whole of the Profits Tax. I think that that would be asking too much and introducing too many other problems which would have to be dealt with expeditiously and effectively at this moment. I forgive the Chancellor for taking the thing ready at hand, without paying too much attention, at this stage, to the majority report of the Royal Commission.
I think that the Chancellor is probably wise in saying, "I will do the best with the Profits Tax structure as I find it, because I want speedy action and to make it as effective as possible without raising all sorts of incidental problems either of either administrative or taxation policy." My complaint is that even on that basis he has not used this weapon boldly enough. If he had wanted to sound a warning and send a steadying message to the mass of the workers, he could have done it by doubling the increase in Profits Tax. It would have shown that, despite the inconvenience and difficulties which would flow from that temporarily, the Chancellor meant more business than the Clause suggests.

Viscount Hinchingbrooke: He might have meant more business, but what effect would a more steep Profits Tax have on the trade union movement? Would that cause it to refrain from putting forward these claims?

Mr. Houghton: I am afraid that the noble Lord is so far removed from the way of thinking of the trade unionist that he does not understand the impact of things on the trade union mind. I can only say that collective trade union opinon is influenced by all sorts of social and economic factors.

Viscount Hinchingbrooke: Towards what?

Mr. Houghton: Towards the restraint which the Chancellor is asking them to exercise. After all, Sir Stafford Cripps, when Chancellor of the Exchequer in the Labour Government, did manage to capture that response and, for the first time in trade union history and contrary to all trade union experience and tradition, the Trades Union Congress passed a resolution in favour of wage restraint, and asked its members to hold back pressing their claims further in the light of the economic situation.
That would not be impossible even under a Conservative Government, provided that the indications were that it was necessary in the national interest, and that the Chancellor was trying to distribute all the sacrifices as fairly as possible. That is the answer which I give to the noble Lord. Opinion is moulded by many factors and aspects of a comprehensive and complicated situation, but the trade union mind is not governed solely by motives of greed and by motives of acquiring a higher wage or greater wealth. The trade unionist has a national responsibility. He has a desire to help the country recover from its economic difficulties.
If right hon. and hon. Members opposite do not accept that view and respect it, they will fail in their dealings with the trade unions. I hope that I have made that point, and I certainly hope that the Chancellor's policies will succeed. We do not want to see them fail, but we have serious doubts as to whether he is setting about this in the right way. He may succeed, more by luck than good judgment, and

if he fails the consequences may be very serious indeed. I believe that it would have been much better and would have improved the general atmosphere greatly if the right hon. Gentleman had struck a firmer note in this Clause and had shown to the world that the rise in distributed profits should be checked, but investment should not be discouraged where investment for future productivity was possible. Then we should have had a more tolerant general approach to the Government's financial proposals which, at the moment, are receiving a very bad reception throughout the whole of the country.

Viscount Hinchingbrooke: The hon. Gentleman the Member for Sowerby (Mr. Houghton) said that I did not know much about the trade union movement. That may very well be true, but I hope that I know a little about human nature. The last thing that the trade unionists are going to rest upon in determining whether they put in wage claims is whether or not there is a swingeing Excess Profits Tax imposed by the Government. That may very well work with the T.U.C. on the higher levels, because of its close association with the Treasury and the Government, and the hon. Gentleman himself may very well hold that point of view; but the idea that in order to avoid wage claims coming forward we must have this highly-exaggerated Profits Tax will not wash. The final logic of the hon. Member's position is that there will be no demand for extra wages if there is imposed a level of taxation on profits sufficient to extinguish them altogether. I do not believe that the trade unions argue in that way.
The reason there are wage claims now is because of the demand which comes from the lower-paid workers that they must have increased wages to meet the rising prices of the present day. That is why I do not like the Purchase Tax and also do not like the provisions of this Clause. The hon. Member for Edmonton (Mr. Albu) said that he hoped that the Government would be very forthcoming on this matter. I hope so too. I should like an explanation of the philosophic approach of the Government to the tax.
5.0 p.m.
In the spring of 1952, on the instigation of my right hon. Friend the Member for Woodford (Sir W. Churchill), an Excess


Profits Levy was imposed. It was a very weighty charge indeed, and from the beginning hon. and right hon. Members on this side of the Committee, in public and in private, began to argue against it. The Chancellor of the Exchequer himself gave the impression at the time—I cannot quote the exact words—that he was carrying out his duty, that it was a hideous burden for him and that he was anxious to get rid of it as soon as possible.
It will be within the recollection of the Committee that in my right hon. Friend's speech a week or two ago there were words which quite clearly indicated that he was very glad of the day when he got rid of the Excess Profits Levy, and he thought that the Committee ought to congratulate him on what he had done. We do. We are delighted that he got rid of this undue load upon the industrial life of the nation. But if this is the scheme of things, why do we have to return to the attack on this front now? I cannot understand the justification for it. My hon. Friends, in speech after speech in this debate, have given cogent reasons against the tax.
I believe that the inflation argument against the Purchase Tax applies to this tax also—that the price of goods is increased by it. When a big industrialist is casting up a possible balance sheet for the coming year he has regard to wages, to salaries, to the costs of production and to the costs of his raw materials, and then he has a good look at the prospective taxation figure which is already in the previous year's profit and loss account. If that is a high figure, he instructs those below him who are the price fixers in his organisation to see that the price charged for the goods reffects all the costs, including taxation. That process is conducted every year, and is a commonplace in industry. If, therefore, the Profits Tax or the total taxation on industry is increased substantially in a year, we may be quite sure that within a very short space of time the prices of commodities will also increase.

Mr. Albu: Assuming, of course, that prices are fixed by the manufacturer without any relation to a competitive market.

Viscount Hinchingbrooke: Competition and, of course, some other considerations apply, but I should have thought that these were the factors in the decision;

if manufacturers see that taxation is very high, they will also see, within reason and within the possibilities of competing in their markets, that the price is raised as high as it can be raised.
Then there is the other question of differentiation of tax. I mentioned this a few nights ago during one of our debates. I was hoping very profoundly that the Government would be able to get away from differentiation in taxation as between one purpose and another and to cease to apply special directives to industry saying, "We will tax you so much if you distribute and so much less if you save and invest in your own concern." It is the idea of the dirigiste economy coming out again. Here is a Conservative Government increasing differentials, using taxation as a weapon of compulsion towards a State objective, but that is my idea of Socialism and I was hopeful that we were going to depart increasingly from it.
Then there is the "Clore" argument, that is to say an artificial diminution in the value of the company, a result of high taxation and the limitation of dividends. After a time the company builds up pressures inside it and a take-over bid comes along. A mild explosion occurs in the concern and probably many people are thrown out of work. It is a bad idea to create a false set of values in an industrial entity and one tends to do that by this differential method of taxation and by appeals for dividend limitation.

Mr. J. T. Price: Has the noble Lord not realised or considered the point that the period of dividend restraint and wage restraint, which was practised very honourably by the trade union movement, was followed by a period in which equity values were grossly inflated and great tax-free gains were made because the product of wage restraint was being disgorged in inflated dividends?

Viscount Hinchingbrooke: After a long period of Crippsian and Daltonian finance, during which a large section of industry was shaped into an unsatisfactory and unreal mould, my right hon. Friend the Chancellor of the Exchequer began to release the pressures on industry, with the result that events occurred which showed all too clearly the falsity of the previous position.
The hon. Member for Sowerby said that dividends have increased very sharply in


recent months. That is so, but they are not back to the ratio to wages at which they were before the war. [HON. MEMBERS: "Why should they be?"] One has to take a pattern, a basis upon which one can make calculations, and the average of the twenty years between the wars is as good a reference point as any other.

Mr. Houghton: Does that mean that the noble Lord is taking as his pattern a time when two million people were unemployed?

Viscount Hinchingbrooke: I am quite willing to make some adjustments. I do not base myself entirely on those days. They were deplorable days. I am certainly willing to make some adjustments, but we are still nowhere near the ratio of dividends to wages which existed before the war.

Mr. Douglas Jay: Mr. Douglas Jay (Battersea, North) rose—

Viscount Hinchingbrooke: I have given way sufficiently, and my right hon. Friend the Chancellor wants to reply.
I am becoming more and more convinced that if we continue to soft-pedal our belief in capitalism, if we continue to show a frightened attitude towards it and to deny the full provision of capitalism, we shall begin to lose ground overseas. There is no other answer to Communism and all its totalitarian methods than full-blooded capitalism. Hon. and right hon. Members opposite thought they had a partial answer, a middle way. They governed from 1945 to 1951 and made an unholy mess of it.
I am not talking of the kind of capitalism that gets us back to serious unemployment. I am talking about the establishment of full employment in a free society, maintaining the Welfare State within a classical economy. If we can achieve that, it is the answer to Communism. These rather shame-faced attitudes towards the full realisation of capitalism will not do us any good overseas. We should discard them and go forward to a new faith.

Mr. Donald Chapman: We have had a strangely contradictory speech from the noble Lord the Member for Dorset, South (Viscount Hinchingbrooke). For a start,

he denied the proposition of my hon. Friend the Member for Sowerby (Mr. Houghton) that there could be restraint on wages, given some evidence from the Government and industry generally of a restraint on profits and dividends. Then, half-way through his speech, he suddenly recalled the events of 1950 and 1951, when there was indeed restraint, and he began to discuss it. His speech sounded at first as if the noble Lord did not remember living through the years when that experiment in restraint was successfully carried out.

Viscount Hinchingbrooke: We had devaluation.

Mr. Chapman: Devaluation was nothing to do in the direct sense with the question of restraint at that time. [HON. MEMBERS: "Oh."] I should be far out of order were I to continue this argument.
The noble Lord gave us the 1939 relationship between dividends and wages as something which was God-given and to be preserved for all time. Does not he realise that we have been through a social revolution in the years between and that there has been a complete change in the standard of proportion in these matters? I do not know any hon. Member on this side of the Committee, or many hon. Members opposite, who would want to go with the noble Lord as far back as 1938 to state a relationship between profits and wages. The noble Lord must try to realise that a great deal has happened in the way of changes in social thinking since those days.
I wish to say a few words on the line first developed by my hon. Friend the Member for Sowerby. I agree with him wholeheartedly that this tax is nothing but a counter-weapon in the battle to keep down the demands of the trade unions for wage increases. The Banker summarised this in the following statement:
Its real purpose, in which it has already demonstrably failed, was to look to the psychological effect, and to use it as a bargaining counter with the trade unions.
I do not know any hon. Member of the Committee who really thinks otherwise than is stated in that quotation. The Chancellor intended this simply as something to keep the trade unions quiet and,


as The Banker says, it has demonstrably failed already.
Why has it failed? There is the fact, which I have not heard argued to any great extent this afternoon, that as against £150 million or £200 million which the rest of the Budget and the extra budgetary measures will take from the ordinary working people of this country, the effect on profits is a minor one indeed. It does not seem to have been mentioned very much that the effect of taxation on profits this year is nothing at all; that the effect next year is only £10 million, and only in the year after that does it reach £38 million or £40 million. Does anyone on the other side of the Committee really think that by the year after next the Chancellor will not have come along with an excuse for restoring the position as it is at the moment, long before the £40 million figure has had any effect at all?
The reason these proposals have had no effect on hon. Members on this side of the Committee, or on the trade union movement, is that we know that this provision is a blind, in the sense that before it comes into effect there is the greatest chance of it being removed again by another Budget in a year or two.
If we look at the figures for the distribution of dividends so far this year, they are indeed a national scandal. According to the Financial Times, the index of profits and dividends shows about a 21·9 per cent. increase in net ordinary dividends in the first ten months of this year. If we apply that figure over the full range of dividends in public liability companies, it will mean an increase this year of about £120 million in net dividends.
5.15 p.m.
What is the impact of a rate of tax such as the Chancellor is proposing in those circumstances? All that it will raise next year is £10 million, against an increase in the last ten months alone of £100 million in net dividends. If the right hon. Gentleman intended this as a counter to trade union demands for wage increases, or as an attempt to keep down their demands, what effect does he expect this sort of financial comparison to make upon them?
Another reason why I think that this tax will have no effect along the lines which the right hon. Gentleman intends, is because it has little effect on the bigger companies. The Financial Times says:
Fortunately in its effect on earnings it is one which can be measured and it is small. I.C.I.'s earnings to cover its 10 per cent. dividend, for example, are reduced only from 31·7 to 30·7 per cent. and Courtaulds to cover its 10 per cent. dividend from 30·9 per cent. to 30 per cent. Cases where the increase will actually jeopardise the dividend are probably few and far between. …
So what effect is this having on the larger companies?

Mr. John Howard: Would not the hon. Member agree that the reason the new rate of tax has little effect on the cover available for the dividends is that the distribution is minor in comparison with the profits earned?

Mr. Chapman: There is something in the hon. Gentleman's argument, but I am taking that only as an example. If I took the impact on public liability companies as a whole, the basic factors of my argument would remain the same. Indeed, the tax does not have a great effect on the dividend prospects in the near future.
The next reason the Chancellor's quid pro quo has failed is because of the fact that what he is doing with this tax is having no effect on the more spectacular thing which annoys the trade unions, namely, the appreciation in share values over the last few years. My right hon. Friend the Member for Leeds, South (Mr. Gaitskell) has mentioned this time and again.

Mr. Arbuthnot: Does not the hon. Gentleman realise that appreciation in share values in the last two years has been considerably less than appreciation in wages?

Mr. Chapman: That may be so, but one has to pay regard, if the hon. Gentleman will do it, to the fact that wage increases have not, in fact, equalled the rise in productivity in the last few years.
I fail to see that the people who have had tax-free capital gains, in the form of the increased value of their dividends, have done any work comparable to the increase in productivity that the workers, who have had wage increases, have achieved in the last few years. The hon.


Member cannot talk as if they were all working together for these things. He knows very well that there is a windfall capital gain on the one side, and that the wages increases have been worked hard for in the last two or three years.
Capital gains have been substantial. Ordinary shares rose by about 60 per cent. between March, 1954, and June, 1955. Although they have wilted a little since that time, like some other blooms of Tory prosperity, anyone who sold out in time has made a very nice tax-free packet in the last twelve months. On this last count the measure fails, because it does not touch this other part of the whole business which is so infuriating the trade union movement. I believe that in the main we could have had a spirit of restraint in the economy even if we would not have been able to get back to the extent that it was under Sir Stafford Cripps.
I noticed recently in the newspapers that a kite has been flown. It has been said that the Chancellor is going forward with some new and great appeal to industry about prices and profits, in return for which he will ask for a similar agreement with the trade union movement about wage increases. If this sort of new development in the Government's policy had been coming—it has been mentioned a great deal in the Press in the last few days—I think it would have been announced by the Chancellor before now. If he had announced it, I believe that he would have got the response that he desires from the trade union movement—if he was giving something real on the other side. However, if he is putting on the other side the kind of measures that he has included in Clause 2, all his efforts are completely doomed to failure, because they will be taken for what they really are, an absolutely miserable contribution towards achieving a spirit of equity.

Mr. I. J. Pitman: I think that my hon. Friends who have interrupted the hon. Members for Sowerby (Mr. Houghton) and Northfield (Mr. Chapman) have been right to do so. To deal first of all with the fallacy on the part of the hon. Member for Northfield; I would ask whether he seriously maintains that the increase in productivity in this country per hour or per year has been brought about by a greater intensity of output in

respect of any given capital equipment. Is it not obvious to anybody who observes what is happening in British industry today that the retained profits, the extra capital which has been devoted to new equipment and new machinery, better management processes and everything of that kind, have brought it about?
The kind of nonsense which the hon. Member has put before the Committee and the country this afternoon is absolute nonsense to any reasonable elector in my constituency working for a big engineering firm. The Labour Party may persist in their class hatred if they wish, but it will not get them anywhere. Hon. Members opposite must be governed by principle and must begin to talk on the basis of principle.
I turn to the question of percentages, raised by the hon. Member for Sowerby. He said in effect that one company had raised its profits from £100,000 to £120,000, and had therefore increased them by 20 per cent. It used to pay £20,000 gross in dividends, and now it pays £40,000. He said that that company, the profits of which had gone up by only 20 per cent., was putting up its dividends 100 per cent., and that was terrible. The hon. Member knows quite well that if, in his days in the Inland Revenue anyone under him had played about in that way with the growth of percentages, which is notoriously the most quicksandish of all forms of argument, he would have his work torn up and sent back to him and be told to do better.
Secondly, the hon. Members for Sowerby and Northfield were both arguing that the tax is not enough because its whole purpose ought to be to influence wage restraint. My noble Friend the Member for Dorset, South (Viscount Hinchingbrooke) is talking sense when he says that wage increases are demanded by trade unions not in the context of any of that nonsense but on the merits of the case.

Mr. Chapman: Can the hon. Gentleman then explain why in past history we have managed to do it in the context of a national spirit of restraint?

Mr. Pitman: The hon. Gentleman has only to consider the point to realise that it leads to the very opposite. Take the company about which the hon. Member for Sowerby spoke. Let us suppose that


a big wage demand is made to it. The trade union negotiators know quite well that the company is hoping to put up its dividends, and they say, "The extra £20,000 of profit which you hope to make will be subject to Income Tax and Profits Tax at the higher rate if you distribute it. You will pay 70 per cent, of the extra £20,000 in taxation. We are asking for only a meagre £1 per week per head in your industry. Why not buy a happy and contented life? You have merely to take 70 per cent. of the wage increase out of the Chancellor's pocket, and then, for a beggarly 30 per cent. of your carry-forward, you can meet the whole of our demands." That is the opposite way to the direction in which hon. Members opposite say the tax works. The effect is the opposite of wage restraint. In so far as the tax works at all, it is used as a bargaining counter to get a larger amount out of the employer and to cause greater inflation.
I subscribe completely to what was said earlier by my hon. Friends the Members for Dover (Mr. Arbuthnot) and Basingstoke (Mr. Freeth), that the tax is, in essence, a bad one. It means taxing people who would very largely save what would come in as dividends, and transferring it to companies which have to find an outlet for it. It is also most iniquitous in its incidence between one kind of company and another and one kind of shareholder and another. I am afraid that that is based on a fallacy which is operative nowadays in the Treasury. This is, first, that profits are wrong; secondly, that dividends are, if anything, worse; and, thirdly, that profits are really the remuneration of capital.
In fact, the net profit of a company is nothing of the kind; it is the discriminatory element of the profit—not the profit, but a fraction of it—which is properly distributable, having regard to the interests of the creditors. The whole of the conception of profit of the Companies Act lies in the context of what is fair to the people who are supplying goods on credit. To base a taxation system on such a pure term of art rather than on the reality of what the income of the company is seems to me to be the foundation of all the trouble.
I hope that by the time of the next Finance Bill, the Chancellor, if he wishes to tax companies, will find some better

way of doing it than by taxing them in such a way that of two companies making the same trading profits, one is taxed heavily because it has raised all its money in share capital, and the other is taxed extremely lightly because it does not own its property but pays part of its profit to the landlord, because it has charged some of its assets and is paying some of its profits to a debenture holder, because it has borrowed some of its capital on notes and is paying part of its profit to the note holder and paying only the rest of its profits to the shareholders.
That latter company seems to me to be the less desirable, socially, of the two but it is the one which escapes with the very smallest Profits Tax merely because the supposition is made that one can equate a profit in relation to a creditor with a profit in relation to the Inland Revenue in respect of ability to bear tax.
That is where the fundamental trouble lies. I hope that over the year the Chancellor will find some better method of company taxation than the present Profits Tax with its super-Profits Tax on distributed dividends, because to base taxation on net profit will only continue the existing inequalities and bad effects which have been pointed out this afternoon by my hon. Friends.

Mr. Jay: Although the noble Lord the Member for Dorset, South (Viscount Hinchingbrooke) has not stayed for an answer, I note in passing his desire to return to the distribution of wealth in this country as it was before 1939, which I dare say is representative of many of his hon. Friends.
My hon. Friends and I approve the 5 per cent. increase in Profits Tax, so far as it goes. We approve it not just in theory, as one hon. Gentleman opposite said that he approves of capitalism; we also approve it in fact. Indeed we regard it as the only good part of this Budget.
5.30 p.m.
The hon. Member for Bath (Mr. Pitman) said we ought to have some principle in these matters. Therefore, let us look at the two sides of the Committee in order to see which has acted on the most consistent principles on profits taxation. In the autumn of 1949, the hon. Gentleman may remember, when the country was faced with balance of payments difficulties and an inflationary


problem similar in many ways to the present ones, we made a precisely similar increase in the Profits Tax on distributed profits of 5 per cent. I think, therefore, that we are consistent in approving this precisely similar increase now.
Secondly, let us look at the attitude of the Chancellor in this matter. I take it that one purpose of this increase in taxation is to restrain inflation, and I assume from the silence of the Chancellor that he agrees. It is remarkable to read what he said in 1949, when we made a precisely similar increase in this tax, he then said:
… this Measure, although it may appear small, and the 5 per cent. may not appear to Involve a great deal of money, perpetuates an act of economic injustice, which is of no value to the country, and which further perpetuates the Profits Tax on industry. This, as we have claimed, falls largely on the reserves, something which is not in the national interests at the present time.
He went on to say, even more eloquently:
We believe that to transfer a certain proportion of the reserves of companies to the Government to be spent perhaps in current expenditure—which will be the effect of this Measure—will, in fact, be an inflationary move.
That was the view of the Chancellor in 1949 and he described it as
… a short-sighted step in the financial policy which the Government have so disastrously pursued for so many years to the general detriment of the country."—[OFFICIAL REPORT, 11th November, 1949; Vol. 469, c. 1555–1556.]
I claim that we have shown rather more principle than that in having carried out a similar step in 1949 and in approving this one today. So much for the record of the Chancellor for consistency and principle.
I do not think that we can judge fully the value of this rather small increase in profits taxation unless we compare it with the reductions in profits taxation which the Chancellor has made during his entire period of office. In this Clause he is increasing revenue by £38 million. But, of course, the only true way to judge this increase is to set it against the series of reductions in profits taxation which he has been making ever since 1952. I think the Committee should try to work out what that figure is before we agree to the Clause.
I admit that I find it difficult to get the calculation exactly right, and I invite

the Chancellor to correct me when he replies and tell us the precise figure, because he has the benefit of advice from all the extremely learned gentlemen in Somerset House. The right hon. Gentleman makes the calculation rather more difficult because he never tells us clearly what he is doing. Indeed, it is one of my complaints about the Chancellor that he gives us so little information about the effects of his various policies and actions. The only respect in which I would call the right hon. Gentleman an "iron" Chancellor is that he tends to build up an iron curtain around the operations which he is carrying on. In spite of that, let us try to pierce it.
How much relief has the Chancellor given to profit earners in his series of Budgets? In the 1952 Budget, when incidentally he talked about equality of sacrifice for all, he put on a new Excess Profits Levy to raise £200 million, and at the same time made changes in the Profits Tax which, allowing for the repercussions on Income Tax, increased profits taxation net by £100 million—so far a net increase of £100 million. Then, in 1953, the right hon. Gentleman decided in his own words that
We must get out of the slack water, lighten the ship and give her way."—[OFFICIAL REPORT, 14th April, 1953; Vol. 514, c. 50.]
Incidentally, there was nothing said at that time about "broadening the basis of taxation." So he abolished the E.P.L. and refrained at the same time from restoring the Profits Tax. This means—I think this is correct—that, so far, profits taxation was down by £100 million net on the whole operation; and the figures in this year's Financial Statement appear to confirm that estimate.
Also, in 1953, the Chancellor restored the initial allowance, which gave another relief to profits taxation of £84 million in a full year. I give all the figures for a full year, although my hon. Friend the Member for Northfield (Mr. Chapman) is right in saying that the present change will not operate fully for several years. So far, total relief to profits amounts to £184 million, but the Chancellor also "lightened the ship," as he called it in 1953, by a cut of 6d. in the standard rate of Income Tax, which gave another £45 million to profit earners—a net gain so far of about £230 million in tax relief for profits. In 1954 he brought in the investment allowance. But I leave that out of


account because it is not, in the ordinary sense, an unconditional relief of profits taxation. On the other hand, it gives actual relief and therefore, my total is, if anything, an under-estimate.
Then this year the Chancellor came along again with a further cut of 6d. in Income Tax, which he told us, in his own words, gave "rather more than £40 million to industry." I should have thought it would have given at least £45 million if the similar cut two years before gave £45 million. At any rate, if it is £45 million, so far,, up to this Budget, those figures, including the spring Budget of this year, give a grand total of reliefs for profits which appears to be about £275 million a year.
That is not the end of the story. It does not allow for the fact that profits are much larger today than they were in the years in which those earlier reliefs were given. So I would like to ask the right hon. Gentleman this question. It is a relevant one and so perhaps he can give us the figures this evening. What would be the additional Profits Tax and Income Tax revenue from profits this year if the tax rates of 1951 to 1952 were in force in the present year instead of those which now prevail? I would estimate—or rather guess, because it is impossible for us to do more than guess—that, even leaving the investment allowance out of account, it must be at least £350 million, with present profits, and perhaps nearer £400 million a year. But I should like the Chancellor to tell us.

Mr. J. Howard: The right hon. Gentleman has referred to initial allowances and has taken credit for £84 million. Would he not agree that initial allowances are merely an anticipation of allowances which will be given in any event and therefore do not amount to any reduction in tax?

Mr. Jay: We have argued that often, and the conclusion is that, since the entire process is continuous, at any given moment they amount to an outright reduction in taxation.
I ask the Chancellor to tell us the figure. But so far as I can see, the blunt truth is that this £38 million increase in tax in this Clause, even when we come to its operation in a full year, is only about 10 per cent. of the total reliefs in

profits taxation alone given by the Chancellor since 1951, without allowing for any of the reliefs on the higher personal incomes.
So what the Chancellor is really doing throughout this operation is to give enormous reliefs to profits. At the same time, and I mention this only by way of illustration, I say that he is taking extra revenue from a much more regressive Purchase Tax—the revenue of which, incidentally, has gone up from £300 million to over £400 million since the time when the Labour Government were in office. The housewife, in fact, is paying for the largesse given over these years to the great companies. The remarkable fact is that the relief in profits taxation alone is very nearly equal, if not quite, to the present entire Purchase Tax revenue today.
I believe that this process of lightening profits taxation rather than taxation upon the lower and middle earned personal incomes is wrong and reactionary. Even the noble Lord the Member for Dorset, South might agree with me about that. From the point of view of incentive, as well as of social justice, there is some case for lower direct taxation upon the smaller and middle earned personal incomes rather than upon the profits of big companies.
To those hon. Members opposite who are so worried about the present level of taxation upon profits, I would point out the remarkable fact that, even after this increase, the present level of profits taxation in the United States is slightly higher that it is here. Practical experience shows that under this highest level of taxation upon profits which has ever been known in any country in peace-time, production, investment and employment in the United States today are more buoyant than they have ever been. That is some comment upon the theory that profits taxation does disastrous harm to our industrial processes.

Mr. Pitman: Is the right hon. Gentleman saying that taxation upon distributed profits in the United States is as high as 70 per cent.?

Mr. Jay: In the United States there is a 52 per cent. outright tax upon corporation profits, whether distributed or undistributed; and if we allow for


personal Income Tax at an average level, the total is still greater than it is here. If the hon. Member will consult the experts, I think he will find that that is true.
We believe that this shift of taxation on to the ordinary consumer through higher indirect taxes—which are at a lower level in the United States than here—and away from profits taxation, is purely regressive and reactionary. We approve this latest increase in the tax upon profits, so far as it goes; but we utterly condemn the wholly reactionary shift of the tax burden away from profits and on to the ordinary family, which appears to have been the main purpose, and has certainly been the main effect, of the Chancellor's policy over the last few years.

5.45 p.m.

The Chancellor of the Exchequer (Mr. R. A. Butler): I should like to answer the right hon. Member for Battersea, North (Mr. Jay), at any rate, now, and within a reasonably short time I hope that we may arrive at a decision upon the Clause, because we still have a considerable amount of work to do, much of which is detailed. The hon. Member for Stechford (Mr. Roy Jenkins) and the right hon. Member for Battersea, North adopted rather more agreeable language in reference to the Clause than has been the lot of the Government to receive during the last five days. The hon. Member for Stechford at one period actually used the word "acceptable," which seems to show a great revolution in thought in our financial debates, and the right hon. Gentleman has said that he approves the tax so far as it goes.
One or two speeches criticising the tax have been made by my hon. Friends, and I shall make reference to them later. I foresaw this in one of my statements last night, so I can tell my hon. Friends that they have in no way surprised me; indeed, like Clive, I stand astonished—but at their moderation. I will, however, deal with their arguments as best I can—and also with the arguments raised by hon. and right hon. Gentlemen opposite.
First, I want to take up one of the right hon. Gentleman's points, because I was going to address myself to the question whether this 5 per cent. increase is big enough. That leads me to reply as best I can to the right hon. Gentleman's

question relating to a comparison between the effects of profits taxation now and in 1951. Before I give the best summary I can of the position, I want to say that in my opinion the rise in tax on distributed profits is big enough. It was not designed—as the hon. Member for Sowerby (Mr. Houghton) suggests—as a foghorn, or purely as a psychological attack, or as some appeasement to the unions. It was designed quite simply as a method of checking the pressure upon the economy of income rises, due in part to increased dividend distribution, in the same way as the Purchase Tax portion of the Bill was designed to deal with the increase in consumer demand as exhibited in the ordinary wage-earning home.
Those provisions form part of one simple economic whole, and the fact that there has been universal criticism gives me great confidence that, for perhaps the first time, somebody may be on the right economic path.

Mr. Jay: In that case, can the Chancellor say why he totally disapproved of the same action being taken in 1949?

Mr. Butler: I see that a great economist has now come into the Chamber, so he will not take my words amiss. It is so satisfactory to walk so calmly down the middle of the road, rejecting and neglecting missiles from either side, and to feel that one is really achieving something both from the point of view of consumer demand and the effect of the rise in incomes.
The right hon. Gentleman wanted to know what was the total effect of the reductions which I have made in demands upon companies by way of Profits Tax over the years. I do not accept his figures. They are very complicated, and I believe that they neglect certain factors. One such factor is the effect of the incidence of the Excess Profits Levy. That was not mentioned by the right hon. Gentleman. I do not accept that the rises which he has indicated produce the exact result which he has mentioned.

Mr. Jay: I do not want to interrupt the Chancellor too often, but I gave his own figure for the increase when it was imposed, and his own figure for the net increase when it was reduced. Surely he must agree that the figure is at least £275 million—because that is the simple sum of the figures which he gave in his own Budget speeches.

Mr. Butler: I am unable to accept those figures at this moment. But I will certainly examine them, and at a later date we may be able to clarify them. All I can do now is give the percentages of the relationship of Profits Tax upon distributed and undistributed profits as proposed in the Clause, as compared with the situation in 1951. I am referring to the maximum combined effective rates of Income Tax and Profits Tax and comparing the results of the proposals in the Bill with the situation in 1951.
First, we have to take distributed profits. If we take the maximum combined effects of Income Tax at 8s. 6d. in the £, which is the result of the last Budget, that would come to 42½ per cent. and, adding that to the proposed new Profits Tax of 27½ per cent., we arrive at a figure of 70 per cent. In 1951, the Income Tax figure was 47½ per cent. and the Profits Tax figure 26¼ per cent. making a total of 73¾ per cent. In relation to undistributed profits there is a more marked difference, about which I shall say something shortly. Taking Income Tax again at 8s. 6d. in the £ we get 42½ per cent., with 2½ per cent. for Profits Tax on undistributed profits, making a total of 45 per cent. In 1951, the figure was 47½ per cent. for Income Tax and 5¼ per cent. for undistributed Profits Tax, giving a total of 52¾ per cent.
That indicates that we are somewhat below the 1951 level, but it does not give the impression, given by the right hon. Gentleman, of a staggering difference that will be caused when the Bill becomes law. There is, of course, a very distinct difference in the level of undistributed profits if we compare the position as it will be after the Bill becomes law with that which existed in 1951. That is the best answer I can give the right hon. Gentleman in the short time available. I will examine his figures with a very clear and careful eye when I have the opportunity of studying them in print.
I should say that the conclusion to be drawn is that the figures I have indicated, namely, 70 per cent. on distributed profits taking account of Income Tax, and 45 per cent, on undistributed profits, are quite a heavy enough tax on industry at the present time. In so far as it is an improvement on 1951, it shows that the Government have made an improvement in the tax to be levied on industry. So

far as there is this marked difference between undistributed and distributed profits in the years ahead of us as in 1951, it shows a distinct improvement.
I came to the conclusion, therefore, that the imposition of an extra 5 per cent. was as much as was reasonable for industry, and that the slice suggested in the Budget is big enough to meet our needs. It will and should have the effect—indeed, it already has had the effect—not only on the boom conditions which I thought were unsatisfactory in the present economic climate, but on the general outlook.
The hon. Member for Sowerby must not underestimate the effects which the other measures, of which I cannot speak because to do so would be out of order, such as the credit measures, will have upon the economy and it will help the moderate and reasonable view which the trade unions will take of their responsibility. In this respect I do not want to add to what was said by the hon. Member for Leeds, South (Mr. Gaitskell) yesterday, that the unions will make up their own minds. Looking at the words of the Clause, as only one small section of our proposals, I think that is the effect which they will have on the economy.
I now come to the series of arguments used by hon. Members. I am taking the argument raised by the hon. Member for Bath (Mr. Pitman), who is a considerable expert in these matters. To put it mildly, he did not like this tax at all. He said it was in some respects immoral and wrong. If it is any comfort to him I will tell him that I approached the preparation of this Budget by reading very carefully the Report of the Royal Commission. I have been very disappointed that I have not been able to accept, at any rate in this Budget, its recommendations for what may be described as a "corporations" tax. I tell the Committee frankly that I think it would have been a very good idea to introduce such a tax. Corresponding to the levels of distributed and undistributed profits before the Bill was introduced, the level of such a tax would have been about 8 per cent., equivalent to 22½ per cent. on distributed and 2½ per cent. on undistributed profits. It would have been very simple to have raised the proportion slightly to bring in a sum equivalent to, or perhaps higher or smaller than, that which the Bill envisages and to do the whole operation as a general reform


which, at the same time as it brought in a corporations tax, would deal with the rise in income which is a feature of the inflation at present.
I would comfort my hon. Friend the Member for Bath by telling him frankly that I could not accept in a hurry, and without a great deal more thought, the conclusions of the Royal Commission on this matter. That is not in any way a derogation from the dignity or the efficiency with which the Royal Commission, either the minority or the majority, performed its work. I should like here to pay a tribute, perhaps on behalf of this Committee, to the way in which the Royal Commission did its work and to say that its conclusions are not prejudged by this Budget, which is an emergency Budget.
I cannot give any pledge on behalf of the Leader of the House, but I quite understand the desire of hon. Members on both sides of the Committee, my hon. Friend the Member for Basingstoke (Mr. Freeth) as well as the hon. Member for Stechford, for more time in which to discuss the conclusions of the Royal Commission's Report. It is a perfectly reasonable request. Hon. Members must not regard me as having pledged the Leader of the House as to time, but it is a right request that the conclusions of the Royal Commission, both majority and minority, should be considered in much more detail and not in an emergency atmosphere.
Why could I not accept the Royal Commission's recommendations straight off? I give only one main reason. I discovered that if I introduced a corporations tax, which I should have liked to do because it would have been accepting the Commission's Report and dealing with the inflationary atmosphere, as has been suggested, it would, in the opinion of myself and my advisers, have resulted in favouring companies which distribute the higher proportion of their profits. In these matters my advisers are more important than myself. Having discovered that, I found that these are not particularly suitable recommendations to accept and would not suit the inflationary situation with which we are dealing.
I also found out certain other things, on most careful examination of the Royal Commission's Report, about what type of

company and institution a corporations tax would benefit. Without being invidious and going into them by name, let me say that they were not the types of company which I wanted to encourage, particularly at present. For these reasons I decided that it would not be suitable to adopt this proposal. I hope that members of the Royal Commission will realise that the future is in no way prejudiced. We must now give our attention to this whole matter, and if we are to adopt any of the proposals we must only do so after more thought.
That brings me back to the conclusion that the only quick and clean thing to do was to raise the tax on distributed profits. It has been suggested by the hon. Member for Northfield (Mr. Chapman) and other hon. Members that this increase will not operate at once. It was well known that the Profits Tax, even when it was introduced and when I used the language which the right hon. Member opposite has referred to, had to operate a year later. It has a considerable lag. But, as the Financial Secretary said in one of our recent discussions, the prospects of this Profits Tax would have exactly the same effect on companies as the actual collection of the money. He used these words:
From now on, the board of directors of every company which is deciding what dividend to declare will have to allow for it. In this way it begins to exercise its influence, in line with the needs of the economy, more swiftly even than does Purchase Tax."—[OFFICIAL REPORT, 8th November, 1955; Vol. 545. c. 1666.]
I believe that the effect of this distributed Profits Tax will be felt at once, although the hon. Member for Northfield attempted to make out that because it was not operating it would not have any effect. Our conclusion is that the Profits Tax is the best weapon to use in dealing with this position of the increased pressure of incomes, and that its imminence being known to boards of directors will make it as effective a weapon as we are likely to find in looking round the subject at the present time.
Now I come to the argument of my hon. Friend the Member for Basingstoke. He asked whether the distributed and undistributed profits tax was not more or less inflationary. Let me say, in passing, that while I do not agree with the conclusions to which the hon. Member came, the spirit in which he made his speech was one which the Committee appreciated,


namely, that he stated views which he holds. That is the simplest thing to do and the most straightforward way to conduct our affairs. On that part of the Budget I used these words:
I have considered whether I should increase the rates of Profits Tax both on distributed and on undistributed profits. I am reluctant to increase the rates specifically charged on amounts put to reserve since to do so would tend to impede the necessary replacement of capital assets and to discourage future investment rather than current consumption."—[OFFICIAL REPORT 26th October, 1955; Vol. 545, c. 226.]
That was my view, upon which I have acted.
There is a certain sense in some of the arguments of the hon. Member for Basingstoke. It may be said that investment itself is inflationary because it makes a call on labour and materials. My answer is that too much investment, I mean too large a call on labour and materials, is one of the causes of our inflationary trouble. Therefore, I had to take a difficult decision. I had to consider not only whether to listen to the hon. Member for Stechford and put more taxation on undistributed profits but whether to deal with investment allowances and remove them. I decided against both courses, after mature reflection, and because I am thinking of the future.
6.0 p.m.
While I agree that there has been more of a boom in investment than any of us, even right hon. and hon. Members opposite, expected—for example, an increase of about 60 per cent. in factory building over last year, which is far more than any of us in this Committee expected eighteen months ago—it has to be remembered that the "credit squeeze" is designed to be a measure to deal with over investment. I am satisfied that we should, at any rate, give more opportunity for the credit policy to work on investment before we start cutting it back in the ways suggested. That is my answer to hon. Members who have raised these arguments—which are genuine arguments—and I hope that they will accept the arguments I have used as indicating that it is wiser, on the whole, to think of the future, and to deal with the momentary inflationary features by an increase in distributed Profits Tax.
I am left with the speech of my noble Friend the hon. Member for Dorset, South (Viscount Hinchingbrooke). I thought that he spoke, not only very shortly—which increases his nobility—but also very moderately. I do not use the word "moderately" in a pejorative sense, but in the sense of his restraining the emotions which he felt on the subject. With him, I feel that we have to have a capitalist system which works, and a free economy which works, and the fact is that over the years we have done a great deal of liberation. One of the results of our liberation has been a greatly increased prosperity for the country, an opening up of markets, freedom of choice and things we had almost forgotten about.
Hon. and right hon. Members opposite brought us through what has been described as the Crippsian era, a period of austerity, which may have been right or wrong, however one looks at it. At the time it may have been necessary for the evolution of the British economy, but it had to be followed, at some stage, by a liberation of human effort and human wishes. That is what we have done. The fact is, however, that in doing that we have now found that there is, as I have said, a pressure of home demand and of incomes due to increased distribution of dividends.
I believe that this measure which we are introducing today, combined with all the other measures—including the "credit squeeze"—will do something to deal with the income side of the problem. Therefore, I have introduced it, although I did not expect it to be popular. I hope that the Committee will now realise the motives which have prompted me to take this step; why I did not accept the Royal Commission's Report, and why I thought it wise to deal with this as an anti-inflationary move which I and my advisers think will have the effect desired. It is not purely psychological; it is not a foghorn, it is not a stunt. It is intended as an anti-inflationary move which, I believe, will have the effect we desire. It is in that spirit that I ask the Committee to pass the Clause, and enable us to get on to the more complicated business that follows.

Question put, and agreed to.

Clause ordered to stand part of the Bill.

Orders of the Day — Postponed Clause 3.—(LLOYD'S AND OTHER UNDERWRITERS.)

Mr. Kenneth Robinson: I beg to move, in page 2, line 40, after "effect" to insert:
as regards any underwriter who establishes to the reasonable satisfaction of the surveyor of taxes that a substantial part of his business represents the insurance of risks outside the United Kingdom.

The Deputy-Chairman (Sir Rhys Hopkin Morris): I think that it will be for the convenience of the Committee if, with this Amendment, we were to take that in page 3, line 10, at end, insert:
Provided also that the said amendment shall not apply, unless the underwriter can show to the satisfaction of the surveyor of taxes that in the year preceding the year of assessment he has either received a premium income amounting to not less than the sum of one thousand dollars in the currency of the United States of America or paid losses amounting to not less than that sum in that currency.
They both cover very much the same point.

Mr. Robinson: I find it rather strange that the concession embodied in this Clause has never been discussed in this Committee. I do not know the reason for that; it may be that it is an extremely complicated and involved matter. The fact is that it was first introduced in the 1949 Budget of Sir Stafford Cripps. Apart from a very brief reference in my own maiden speech in that Budget debate, I do not think that the matter was referred to at any stage of the Bill. The Clause embodying the concession was agreed to without Amendment or debate. Again, in 1952, there was no discussion, and the Clause was agreed to without Amendment and without debate. We on this side think that the time has now come when it should be looked at rather closely.
Two main reasons have been put forward in the very brief references by various Ministers for making this concession which is, in effect, a Surtax concession to underwriting members of Lloyd's. In his Budget speech of 1949, Sir Stafford Cripps said:
I regard this as a necessary and desirable adjustment, so as to assure the stability of Lloyd's underwriting, and the foreign exchange income that we derive from it."—[OFFICIAL REPORT, 6th April, 1949; Vol. 463, c. 2090.]
Very roughly, that is what has been said since.
The first reason given for the concession is that it is to compensate Lloyd's underwriters for a special disability which they suffer by reason of being unable to trade as a company. I should be out of order if I pursued that any further at the moment, although it may be possible to say a few words about it in the debate on the Question, "That the Clause stand part of the Bill." The second reason given is that it is intended to preserve and increase the foreign exchange earnings which we derive from the insurance industry.
In the Second Reading debate, the Financial Secretary enlarged on those two reasons and we are grateful to him for the only attempt so far made—even sketchily—to explain this Surtax concession. On 8th November last, the Financial Secretary said:
Clause 3 is important to our balance of payments. We need all the dollars we can earn by doing insurance business overseas. Our invisible exports can be of tremendous importance and value to us just now.
A little later he went on to say:
Because of its urgency for maintaining, and I hope expanding, dollar earnings, this Clause cannot wait until next year's Budget"—[OFFICIAL REPORT, 8th November, 1955; Vol. 545, c. 1667–8.]
It may be desirable to encourage the underwriting of dollar insurance business in this country, because it is perfectly true, as the Financial Secretary said, that dollar insurance premiums obtained by our underwriters represent invisible exports. What is not so often stressed, of course, is that claims paid in dollars by our underwriters represent invisible imports. When deciding whether or not this is a justifiable concession, surely our only concern should be whether the net result of transactions, over a period, represents an invisible import or an invisible export. That is what we are never told.
I should like to know whether the Financial Secretary can tell us the overall results of dollar business—because most of his arguments are related to dollar insurance rather than to the more general question of overseas insurance—by Lloyd's underwriters, if possible, because this concession relates only to them. If he cannot tell us that, perhaps he can tell us the results for the insurance market generally. Whether there is a net profit or a net loss seems to me to be highly


relevant to this discussion. One or two of his remarks on Second Reading suggested that the results have not been very good lately. He said that the catastrophic loss arising from hurricanes in the United States had necessitated the increase in this concession.
That is not surprising to me in view of the nature of most of the dollar business which is underwritten by the London insurance market. It is quite unreal to suggest that it is necessary to have special facilities in order that additional dollar insurance can be under-written in London. What happens is that, by and large, we get in London only the American insurance business which the American insurance market either cannot itself absorb or does not want, either at any price or at the rate of premium offered by London.
That certainly used to be the case when I worked at Lloyd's before the war, and I have no reason to suppose that it is any different today. One of the types of insurance which was very frequently placed in the London market was what was known as the excess loss insurance. I will not go into the technicalities; indeed, I might not be within the bounds of order if I did. Briefly, it is an insurance of a very large sum of money to be paid only in the event of a catastrophe, and because of that the insurance is at a very low rate of premium indeed. The strange thing is that catastrophes happen with monotonous regularity, but the London insurance market goes on writing these risks.
If some hon. Members think that the situation may have changed recently or since the war, and that America is now willing to allow large insurances to be placed in the London market which she would dearly like to underwrite in her own market, I simply suggest that they should ask themselves whether that is likely in view of the experience which we have had over certain matters such as the Chief Joseph Dam contract and various other large contracts where this country has put in lower tenders than any other but, in the end, has failed to get the contract. Is it likely that there has been this change, when we consider the additional import tax imposed on bicycles exported to the United States from Great Britain when the volume of business became what the United States considered to be dangerously large from their point

of view? I suggest that these factors still operate as they operated when I knew a certain amount about dollar business with Lloyd's before the war.
I do not accept, and I do not think my hon. Friends accept, that a concession like this is necessary to enable Lloyd's underwriters to obtain such dollar business as the United States is likely to allow to be placed outside their own country. Nevertheless, if we accept for a moment the argument of the Financial Secretary and his predecessors, what concerns us is that no limitation of any kind is placed on the concession in order to limit it to those underwriters who carry out foreign and dollar insurance.
That brings me to the point of the Amendment which I moved and the other Amendment which, Sir Rhys, you said we could discuss at the same time. The purpose of these Amendments is to limit this very substantial concession to those underwriting members who can show that the business which they transact includes a substantial proportion of foreign business. The second Amendment deals specifically with dollar business.
I want to ask the Financial Secretary one or two questions, because on Second Reading he left many questions unanswered. He said, in effect, that this concession is a deferred payment of Surtax rather than a Surtax exemption in that the tax which is not paid now will come to the Exchequer in due course when the special reserve funds which are set up under the Clause are wound up on the retirement of the underwriting member concerned.
What happens when the underwriting member dies while still carrying on his business? Is it a fact that, at any rate originally, a loophole existed here? Could the right hon. Gentleman say whether it has now been closed and could he say that in all circumstances, on the death or retirement of an underwriter, the Surtax which he is permitted not to pay now will become payable?
6.15 p.m.
I want to ask a question about the cost of this concession as a whole. The right hon. Gentleman very kindly told us on Second Reading that this expansion of the concession was estimated to cost £500,000 in a full year. I should like to know how much the total concession costs in a full year. If it is roughly pro rata, then from


the figures given it seems to me that the total cost is £1 million to £2 million a year, which is a very substantial concession.
I think hon. Members should appreciate how this concession has grown since it was first introduced. When Sir Stafford Cripps introduced it, it was possible for underwriters to place into the Special reserve funds £1,500 a year or 25 per cent. of their under-writing profits, whichever was the smaller. Now, under the Chancellor's proposal this year, the figures will go up to £7,000 or 50 per cent. of the profits.
There is one further question to which I want the Financial Secretary to address his mind. Sir Stafford Cripps said, in a very brief reference to this matter, that although these profits would be exempt from Surtax, by reason of this concession, they would become liable to Profits Tax. I know that the basis of levying Profits Tax has changed since then, and I want to ask the right hon. Gentleman whether these sums are still liable to Profits Tax. If that is so, and, indeed, in any event, will he say whether the concession is so much more valuable in view of the reduction in tax on undistributed profits since 1949? If that is so, perhaps he could tell up how much more valuable it is to Lloyd's underwriters as a whole.
I think my right hon. and hon. Friends' attitude towards these Amendments will depend very largely upon the reply which the Financial Secretary gives, because we are not satisfied that the concession, as it is drawn at the moment, has been justified by anything which the Chancellor or the Financial Secretary has said hitherto.

Mr. Houghton: I congratulate my hon. Friend the Member for St. Pancras, North (Mr. K. Robinson) on his very lucid and clear explanation of a very difficult subject. I think the whole Committee must tread warily now, because we are about to enter the jungle. There are many things about taxation in this field which are not easily understood by the layman. Lloyd's underwriters have always had a great fascination for the British public. It is a romantic institution; it is the place where one can insure against any risk, we are told. One can insure against having twins and one can insure against a wet

day for the flower show. One can insure against almost anything.

The Deputy-Chairman: I do not think that that comes into the Amendment.

Mr. Houghton: I am dealing with the Amendment, Sir Rhys, because it is obvious that the important part of Lloyd's underwriting, with which we are now concerned, is the ability to insure against risks in the dollar market. These policies which have to do with catastrophies engaged my attention and I wondered whether the risk of having a Conservative Government was among them, although I admit, Sir Rhys, that that was nothing to do with dollar earnings.
When explaining this Clause in his Second Reading speech, the Financial Secretary said:
Unfortunately, the United States has suffered tragically from hurricanes in the last year or two. These have thrown heavy liabilities on the London insurance market. My right hon. Friend became aware that Lloyd's underwriters were realising that they would be forced to restrict their commitments in America unless they could find some means of increasing their covering reserves.
On hearing that speech I was moved to sympathy with the citizens of the United States and with Lloyd's underwriters on the tragic events which had befallen them. The right hon. Gentleman went on to say that something needed to be done. We can understand that when the right hon. Gentleman says that something needs to be done in this Bill it needs to be done as a matter of urgency. He then said:
Its dollar-earning effect is well worth the temporary loss of revenue."—[OFFICIAL REPORT, 8th November, 1955; Vol. 545, c. 1667–8.]
This Amendment is designed to focus attention on the dollar earning element in this concession.
It is a concession, whether it is a postponement of the payment of Surtax or however one looks at it. If it were not a concession no one would have asked for it and it would not have been necessary for the Chancellor to give it. I think we are entitled to ask who made the Financial Secretary's right hon. Friend aware of this matter. He said, "My right hon. Friend became aware." If he became aware someone must have told hint something. He would not have known it without being made aware. Who told him and what did they say? I believe that Lloyd's underwriters have some kind


of governing body; I believe that it is called the Committee of Lloyd's Underwriters. Did that Committee make the Chancellor aware of it, and, if so, how did it satisfy him of the need to introduce this concession into an emergency Budget and this Finance Bill?
One would assume that the events of the past would already have had their effect on existing reserves. Unless similar tragic events were feared for the future, it is not very clear how the reserves for the future have to be increased to provide for risks the nature of which could not be known and the incidence of which could be still less known. In this Amendment we want to focus attention on the dollar-earning importance of this concession, so we reasonably say that this concession should be given to those underwriters for whom it is intended and not to the others. Those who are insuring people at home against having twins, against having babies with red hair, or against having a wet day for the flower show, should not come within this concession, because no hurricane has hit them.
Lloyd's underwriters would get the concession under this Amendment if they could establish to the reasonable satisfaction of the surveyor of taxes—who is mostly a reasonable man—that a substantial part of their business represented insurance risks outside the United Kingdom. That is not unreasonable because all Lloyd's underwirters—those operating at home and those operating abroad, those operating mostly at home and not much abroad, or mostly abroad and not much at home—all stand in the same relationship to this concession. I do not say that they all stand in the same need of reserves, but, after all, who is going to hesitate about reserves if it represents a concession on deferment of payment of Surtax?
Under the existing law, and even under the proposals of this Clause, there is a considerable concession in the event of the underwriter dying in harness. That is where the real concession comes. Although otherwise the underwriters would be brought back into paying Surtax, when an underwriter dies in harness up to now there has been no charge on his estate for Surtax on the reserve fund. Although a later subsection modifies that

as regards the excess over the old limits, it is still important.
We want the right hon. Gentleman to satisfy us rather more than he did that the dollar-earning importance of this proposal justifies the concession. We hope that he will assist the Committee in directing this relief to the type of underwriting business for which it is intended.

The Financial Secretary to the Treasury (Mr. Henry Brooke): This Clause concerns a subject of considerable complexity. If the hon. Member for St. Pancras, North (Mr. K. Robinson) dealt with it in his maiden speech, my opinion of him becomes higher than it was before. I am sure that we should spend a little time discussing this matter now. I was grateful to the hon. Member for his reference to my remarks on Second Reading, because I have been anxious throughout the debates that the Committee should have the broad picture of what is proposed to be done.
I start by answering one or two of the questions—some of which went beyond the narrow scope of the Amendment, but it is necessary to see this question in its setting. The original representations were made by Lloyd's to Sir Stafford Cripps in 1949. There have been subsequent communications and representations following them, but there has been no change in the procedure that was initiated when Sir Stafford Cripps decided to introduce the first of these concessions in that year.
The cost of what has been done—that is to say, the 1949 concessions as modified by the 1952 enlargement—is now running at about £1¼ million a year. As I think I said on Second Reading, if the Committee agrees to this Clause the additional cost flowing from this Clause will be about £½ million a year, but that, of course, will decrease as the Surtax becomes payable because, as I pointed out, it is a deferment of Surtax and not an exemption from Surtax. As regards the 1949 and 1952 concessions, there could be an actual exemption from Surtax if the underwriter were still in business when he died and the reserves were intact.

Mr. K. Robinson: Before the right hon. Gentleman leaves that point, would he say whether he considered amending the law so that a loop-hole might be closed in respect of earlier concessions?

Mr. Brooke: I must put it to the Committee that the whole purpose of the Clause is to improve our balance of payments and make it easier for Lloyd's underwriters to strengthen their reserves. It would have been rather anomalous if, in strengthening in one direction, we had weakened them in another by inserting a discouragement as well as an incentive to add to reserves.

Mr. Gaitskell: I wonder whether the right hon. Gentleman will make the position clear, because I do not exactly understand what the position is when an underwriter dies. As I understand, under some of these provisions there would be liability for payment of Surtax and in others there would not be liability. How is the calculation made?

Mr. Brooke: The position is that under the original concession introduced by Sir Stafford Cripps, and extended by my right hon. Friend the Chancellor, in 1952, supposing the underwriter went out of business during his lifetime, Surtax would then be payable on the release of his reserve fund. If, however, he died whilst he was still a Lloyd's underwriter, the reserve fund, on being released, would not be liable to Surtax. That was the principle adopted by Sir Stafford Cripps from the beginning. It is proposed to continue that as far as the existing limits are concerned; that is to say, the limits provided in the 1949 Act, as enlarged by the Act of 1952.
6.30 p.m.
As to the excess which will be permitted under this Clause, if the reserves representing this excess are intact at the time when the underwriter dies, this excess will become liable to Surtax; that is, the amount that has been accumulated under the 1949 and 1952 Acts will still remain exempt from Surtax. The law will remain entirely unchanged in that should the underwriter go out of business during his lifetime, Surtax will be chargeable.

Mr. K. Robinson: This is a most incredibly complicated position. Surely it is the same special reserve fund in both cases. Out of this reserve fund amounts are being transferred from time to time, but not necessarily every year. Who can say whether the amounts transferred come out of the original concession or out of

the new concession which we are discussing in this Finance Bill? It seems to me to be quite fantastic and impossible to implement.

Mr. Beresford Craddock: Before my right hon. Friend replies, may I put a question to him? This is a point which I was going to bring up in the discussion on the Question, "That the Clause stand part of the Bill," and it may be that it will save time if I put it now. At the moment, when the underwriter dies, the 35 per cent. goes into his estate and attracts Estate Duty, but the new concession of 15 per cent. will not do so in similar circumstances. It will be written back over a number of years. To take an example, let us suppose that the underwriter has been in business for forty years. The executors will have the task of going back over the whole of the forty years to try to calculate each year the amount of the Surtax. With great respect, I do not understand why the 35 per cent. and the new 15 per cent. concession should be treated differently.

Mr. Brooke: The point raised by my hon. Friend is, I think, covered by a later Amendment, which, I understand, is likely to be called. Perhaps I can reserve my remarks on it until then.
I grant that this matter is complex, but I think that from the terms of the Bill, if it becomes an Act, it will be perfectly clear to the accountants and others who have to operate the matter exactly how the different parts of this reserve fund should be treated; but I do not at all deny the complexity of it. My right hon. Friend would be acting more generously to underwriters, and indeed more simply, if he were to let the situation continue as regards exemption from Surtax for this excess as well as for the original concession, but in his view that would be going too far, and he thought that it might have been liable to legitimate criticism.
If I may come to the point of this Amendment, having dealt with some of the background, I would say that both these Amendments are designed to secure that the only people who shall derive advantage from the Clause are those who are doing substantial dollar business or overseas business. I understand that it is a fact that a substantial part of the business of all, or virtually all, Lloyd's


syndicates already consists of the insurance of risks outside the United Kingdom. All Lloyd's underwriters, I am informed, do dollar business in the United States, and I would suggest to the Committee that it would be putting in rather a foolish test—I do not mean the word foolish in any derogatory sense, but in the sense that it would not be a very effective test—if anyone, before claiming the advantage of this Clause, had to show a 1,000 dollar premium income per annum.
It would be a very easy test to satisfy, and it might have the unfortunate effect of conveying a feeling that, in Parliament's view, it was good enough if that amount of dollar business was done, whereas, of course, both sides of the Committee desire Lloyd's underwriters to do the maximum amount of dollar business. Indeed, the whole purpose of this Clause is to enable them and to stimulate them to raise that business to the maximum amount which they think is justifiable.
There is a suggestion here that the test might also be concerned with the nature of their losses, but, equally, there is really no reason for giving more favourable treatment on account of losses in America than on account of losses elsewhere. The loss will run down the underwriters' reserves by the same amount of money wherever it occurs, and the purpose of the Clause is to enable the amount of the reserves to be strengthened. Moreover, I am bound to say that it is not only in the United States that we want to see British insurance earning foreign currency.
I grant that the immediate cause of the introduction of this Clause was the serious losses in America, which we all hope are transient, not just for the sake of British underwriters but for the sake of the American people. It was a difficult situation; certainly, it was having a discouraging effect on Lloyd's underwriters going out for overseas business. I hope that the Committee, looking at the rather narrow points raised by both these Amendments, will agree that it would be a mistake to put in some restrictive words of the kind suggested. I am not arguing about the main purpose of the Clause, because we may wish to debate that further.
Finally, I would say to accept the Amendment would be a departure from

what I think is a universally accepted tax principle in this country, a principle which has been accepted in the past by both sides of the Committee and by all parties in the House—the principle that a man's tax liability depends upon the profits he makes and not upon the manner in which he makes them. One pays the same taxes wherever one conducts a business that is profitable. I hope that with this explanation, the Committee will look sympathetically towards the general purpose of the Clause, and will accept from me that it would be unduly and indeed unnecessarily restrictive to write into it the words suggested in these two Amendments.

Mr. Gaitskell: The Financial Secretary, I do not doubt, has done his best both to explain the purpose of this Clause and the reasons why he is unwilling to accept the Amendments, but, with the best will in the world, I must tell him that I do not find very much clearer the intentions of the Government in regard to the Clause itself, and certainly do not feel convinced by the arguments which he has put against our Amendments.
It is admitted that this concession is quite a substantial one. It involves a loss to the Revenue of £500,000 a year, and, I understand from the Financial Secretary, brings the total cost of the concessions as a whole to nearly £2 million. Frankly, for a small body of men—I do not think there is such a large number of underwriters at Lloyd's—that is a rather big sum, and while we all have great respect for the work done there and appreciate the high traditions of London insurance, it is our duty, as Members of this Committee, to scrutinise very carefully concessions of this kind, not least because they might very easily lead to demands from other quarters and special interests which it would be difficult to resist. Therefore, in the case of a Surtax concession of this kind costing £500,000 it is necessary to scrutinise the reasons very carefully.
The Financial Secretary has repeated the argument that the concession is necessary to encourage underwriters to go out and get more dollar business. The right hon. Gentleman has given us nothing more than a bare assertion that they already do a lot of dollar business. He has not indicated any particular reason why at this very moment a concession of this kind should be made. After all, this


is an emergency Budget. There are a great many changes in our tax law which we would have been happy to suggest from this side of the Committee had we been permitted to do so. We are not allowed to do so because of the Ways and Means Resolution, which the Chancellor has defended on the grounds that this is not a normal Budget. It is difficult to understand why this change has been rushed through in this manner without any adequate explanation.
There are one or two points in the Financial Secretary's statement on which I should like to comment. He tried to explain the situation, as regards both the 1949 and 1952 Acts and under the Bill, when an underwriter dies. Here again, I am quite unconvinced by what the right hon. Gentleman said. He finally fell back on the rather unusual phrase, "The accountants will know."
That reminds me of a story of one of the right hon. Gentleman's predecessors, Mr. Stanley Baldwin, who, when Financial Secretary to the Treasury, was explaining a difficult Clause to the Committee. He got up to reply to the general debate on the Clause and said, "This is a very difficult Clause. I do not pretend to understand it myself, but the officials of the Inland Revenue are very clever people and I am sure we can leave it to them." I understand that he got away with it, but I am not sure that we ought to allow the Financial Secretary to get away with saying simply, "The accountants will know." He is not relying even on his own officials. We hope that when we come to the debate on the Question, "That the Clause stand part of the Bill," another attempt will be made to explain the situation, which some of us feel is extremely confused.
On our Amendments, the right hon. Gentleman's only objection was that perhaps they were not necessary. The first is a fairly general one and, I should have thought a very reasonable one. It follows directly on what the right hon. Gentleman himself has said and his only objection seems to be that all underwriters do a

substantial part of their business in foreign markets and, therefore, the Amendment is not necessary. That is not a good enough answer. Simply to have an assurance that they do a lot of foreign business misses the whole point. We want this concession to be limited to the purposes for which apparently the Government intend it. I cannot for a moment accept as an adequate answer the view that the underwriters are doing quite well and that we do not need to worry.

As to the second Amendment, the right hon. Gentleman objected to the fact that 1,000 dollars was not a large enough figure. My hon. Friends would be perfectly happy if the Government chose a higher figure. I admit that 1,000 dollars is low. We put it in the Amendment so as not to appear unreasonable, so that at least we would exclude from the benefits of the Clause those who did no dollar business at all. If the Government feel that the underwriters do a certain amount of dollar business, let them put in—I do not mind what sort of figure it is—perhaps 10,000 or 100,000 dollars, or whatever is the appropriate figure, but let us at least give some incentive to those who are in this dollar business, as, apparently, they all are, to do better than they have done before. In that way we should be justifying the important concession which the Government are making.

I suggest to my hon. Friend the Member for St. Pancras, North (Mr. K. Robinson) that in view of the obvious desire of other hon. Members to speak on rather wider aspects, it might be as well if we came to a decision on the Amendment now, leaving over further discussion for the debate on the Clause as a whole. I do not know what my hon. Friend has in mind, but as far as I am concerned I shall be very happy to support him if he chooses to divide the Committee on the first Amendment.

Question put, That those words be there inserted:—

The Committee divided: Ayes 197, Noes 246.

Division No. 65.]
AYES
[6.45 p.m.


Ainsley, J. W.
Bacon, Miss Alice
Blackburn, F.


Albu, A. H.
Balfour, A.
Blenkinsop, A.


Allen, Scholefield (Crewe)
Bellenger, Rt. Hon. F. J.
Blyton, W. R.


Attlee, Rt. Hon. C. R.
Benson, G.
Boardman, H.


Awbery, S. S.
Bevan, Rt. Hon. A. (Ebbw vale)
Bowden, H. W. (Leicester, S.W.)




Boyd, T. C.
Howell, Charles (Perry Barr)
Popplewell E.


Braddock, Mrs. Elizabeth
Howell, Denis (All Saints)
Probert, A. R.


Brockway, A. F.
Hughes, Cledwyn (Anglesey)
Proctor, W. T.


Broughton, Dr. A. D. D.
Hughes, Emrys (S. Ayrshire)
Pryde, D. J.


Brown, Rt. Hon. George (Belper)
Hughes, Hector (Aberdeen, N.)
Pursey, Cmdr. H.


Brown, Thomas (Ince)
Hunter, A. E.
Reid, William


Burke, W. A.
Hynd, H. (Accrington)
Rhodes, H.


Burton, Miss F. E.
Hynd, J. B. (Attercliffe)
Roberts, Albert (Normanton)


Butler, Herbert (Hackney, C.)
Irving, S. (Dartford)
Roberts, Goronwy (Caernarvon)


Butler, Mrs. Joyce (Wood Green)
Isaacs, Rt. Hon. G. A.
Robinson, Kenneth (St. Pancras, N.)


Carmichael, J.
Janner, B.
Rogers, George (Kensington, N.)


Castle, Mrs. B. A.
Jay, Rt. Hon. D. P. T.
Ross, William


Champion, A. J.
Jeger, George (Goole)
Short, E. W.


Chapman, W. D.
Jenkins, Roy (Stechford)
Silverman, Julius (Aston)


Chetwynd, G. R.
Johnson, James (Rugby)
Silverman, Sydney (Nelson)


Clunie, J.
Jones, David (The Hartlepools)
Simmons, C. J. (Brierley Hill)


Coldrick, W.
Jones, Jack (Rotherham)
Skeffington, A. M.


Collick, P. H. (Birkenhead)
Jones, J. Idwal (Wrexham)
Slater, Mrs. H. (Stoke, N.)


Collins, V. J. (Shoreditch &amp; Finsbury)
Jones, T, W. (Merioneth)
Slater, J. (Sedgefield)


Corbet, Mrs. Freda
Kenyon, C.
Smith, Ellis (Stoke, S.)


Cove, W. G.
Key, Rt. Hon. C. W.
Snow, J. W.


Craddock, George (Bradford, S.)
King, Dr. H. M.
Sorensen, R. W.


Cronin, J. D.
Lawson, G. M.
Sparks, J. A.


Crossman, R. H. S.
Ledger, R. J.
Steele, T.


Cullen, Mrs. A.
Lee, Frederick (Newton)
Stewart, Michael (Fulham)


Dalton, Rt. Hon. H.
Lee, Miss Jennie (Cannock)
Stones, W. (Consett)


Deer, G.
Lever, Leslie (Ardwick)
Strauss, Rt. Hon. George (Vauxhall)


Delargy, H. J.
Logan, D. G.
Stross, Dr. Barnett (Stoke-on-Trent, C.)


Dodds, N. N.
MacColl, J. E.
Summerskill, Rt. Hon. E.


Dugdale, Rt. Hn. John (W. Brmwch)
McGovern, J.
Swingler, S. T.


Dye, S.
McInnes, J.
Sylvester, G. O.


Edelman, M.
McKay, John (Wallsend)
Taylor, Bernard (Mansfield)


Edwards, Rt. Hon. John (Brighouse)
McLeavy, Frank
Taylor, John (West Lothian)


Edwards, Rt. Hon. Ness (Caerphilly)
MacMillan, M. K. (Western Isles)
Thomas, Iorwerth (Rhondda, W.)


Edwards, Robert (Bilston)
MacPherson, Malcolm (Stirling)
Thomson, George (Dundee, E.)


Edwards, W. J. (Stepney)
Mahon, S.
Thornton, E.


Evans, Albert (Islington, S.W.)
Mallalieu, E. L. (Brigg)
Timmons, J.


Fletcher, Eric
Mason, Roy
Tomney, F.


Forman, J. C.
Mayhew, C. P.



Fraser, Thomas (Hamilton)
Messer, Sir F.
Turner-Samuels, M.


Gaitskell, Rt. Hon. H, T. N.
Mitchison, G. R.
Ungoed-Thomas, Sir Lynn


Gibson, C. W.
Monslow, W.
Usborne, H. C.


Gooch, E. G.
Moody, A. S.
Viant, S. P.


Gordon Walker, Rt. Hon. P. C.
Morris, Percy (Swansea, W.)
Warbey, W. N.


Greenwood, Anthony
Mort, D. L.
Weitzman, D.


Grenfell, Rt. Hon. D. R.
Moss, R.
Wells, Percy (Faversham)


Grey, C. F.
Moyle, A.
West, D. G.


Griffiths, David (Rother Valley)
Mulley, F. W.
Wheeldon, W. E.


Griffiths, Rt. Hon. James (Llanelly)
Neal, Harold (Bolsover)
White, Henry (Derbyshire, N.E.)


Griffiths, William (Exchange)
Oram, A. E.
Wilkins, W. A.


Hale, Leslie
Orbach, M.
Willey, Frederick


Hall, Rt. Hn. Glenvil (Colne Valley)
Owen, W. J.
Williams, David (Neath)


Hamilton, W. W.
Padley, W. E.
Williams, Ronald (Wigan)


Hannan, W.
Paget, R. T.
Williams, Rt. Hon. T. (Don Valley)


Hastings, S.
Paling, Will T. (Dewsbury)
Willis, E. G. (Edinburgh, E.)


Hayman, F. H.
Pannell, Charles (Leeds, W.)
Wilson, Rt. Hon. Harold (Huyton)


Henderson, Rt. Hn. A. (Rwly Regis)
Pargiter, G. A.
Winterbottom, Richard


Herbison, Miss M.
Parker, J.
Woodburn, Rt. Hon. A.


Hobson, C. R.
Parkin, B. T.
Yates, V. (Ladywood)


Holman, P.
Pearson, A.



Holmes, Horace
Peart, T. F.
TELLERS FOR THE AYES:


Houghton, Douglas
Plummer, Sir Leslie
Mr. A. Allen and Mr. J. T. Price




NOES


Agnew, Cmdr. P. G.
Bishop, F. P.
Cole, Norman


Aitken, W. T.
Body, R. F.
Conant, Maj. Sir Roger


Alport, C. J. M.
Bossom, Sir A. C.
Cordeaux, Lt.-Col. J. K.


Amory, Rt. Hn. Heathcoat (Tiverton)
Boyle, Sir Edward
Corfield, Capt. F. V.


Arbuthnot, John
Braine, B. R.
Craddock, Beresford (Spelthorne)


Armstrong, C. W.
Bromley-Davenport, Lt.-Col. W. H.
Crookshank, Capt. Rt. Hn. H. F. C,


Ashton, H.
Brooke, Rt. Hon. Henry
Crosthwaite-Eyre, Col. O. E.


Atkins, H. E.
Brooman-White, R. C.
Crouch, R. F.


Baldock, Lt.-Cmdr. J. M.
Buchan-Hepburn, Rt. Hon. P. G. T.
Crowder, Sir John (Finchley)


Balniel, Lord
Burden, F. F. A.
Crowder, Petre (Ruislip—Northwood)


Barber, Anthony
Butcher, Sir Herbert
Cunningham, Knox


Barlow, Sir John
Butler, Rt. Hn. R. A. (Saffron Walden)
Dance, J. C. G.


Barter, John
Campbell, Sir David
Davidson, Viscountess


Baxter, Sir Beverley
Carr, Robert
Deedes, W. F.


Bevins, J. R. (Toxteth)
Cary, Sir Robert
Dodds-Parker, A. D.


Bidgood, J. C.
Channon, H.
Donaldson, Cmdr. C. E. McA.


Biggs-Davison, J. A.
Chichester-Clark, R.
Doughty, C. J. A.


Birch, Rt. Hon. Nigel
Clarke, Brig. Terence (Portsmth, W.)
Duncan, Capt. J. A. L.







Errington, Sir Eric
Keegan, D.
Prior-Palmer, Brig. O. L.


Erroll, F. J.
Kerr, H. W.
Profumo, J. D.


Farey-Jones, F. W.
Kirk, P. M.
Raikes, Sir Victor


Fell, A.
Lagden, C. W.
Ramsden, J. E.


Finlay, Graeme
Lambton, Viscount
Rawlinson, P. A. G.


Fisher, Nigel
Lancaster, Col. C. G.
Redmayne, M.


Fleetwood-Hesketh, R. F.
Leavey, J. A.
Rees-Davies, W. R.


Fletcher-Cooke, C.
Leburn, W. G.
Remnant, Hon. P.


Fraser, Sir Ian (M'cmbe &amp; Lonsdale)
Legh, Hon. Peter (Petersfield)
Renton, D. L. M.


Freeth, D. K.
Lindsay, Hon. James (Devon, N.)
Ridsdale, J. E.


Galbraith, Hon. T, G. D.
Lindsay, Martin (Solihull)
Rippon, A. G. F.


Gamer-Evans, E, H.
Linstead, Sir H. N.
Robertson, Sir David


George, J. C. (Pollok)
Lloyd, Rt. Hon. Selwyn (Wirral)
Robson-Brown, W.


Glover, D.
Longden, Gilbert
Rodgers, John (Sevenoaks)


Godber, J. B.
Lucas, Sir Jocelyn (Portsmouth, S.)
Roper, Sir Harold


Gomme-Duncan, Col. A.
Lucas-Tooth, Sir Hugh
Ropner, Col. Sir Leonard


Gower, H. R.
Macdonald, Sir Peter
Russell, R. S.


Graham, Sir Fergus
Mackeson, Brig. Sir Harry
Schofield, Lt.-Col. W.


Grant, W. (Woodside)
McKibbin, A. J.
Scott-Miller, Cmdr. R.


Grant-Ferris, Wg Cdr. R. (Nantwich)
Mackie, J. H. (Galloway)
Sharples, Maj. R. C.


Green, A.
McLaughlin, Mrs. P.
Shepherd, William


Gresham Cooke, R.
Maclay, Rt. Hon. John
Smithers, Peter (Winchester)


Grimond, J.
McLean, Neil (Inverness)
Smyth, Brig. J. G. (Norwood)


Grimston, Hon. John (St. Albans)
Macleod, Rt. Hn. Iain (Enfield, W.)
Soames, Capt. C.


Grimston, Sir Robert (Westbury)
MacLeod, John (Ross &amp; Cromarty)
Spearman, A. C. M.


Crosvenor, Lt.-Col. R. G.
Macmillan, Rt. Hn. Harold (Bromley)
Speir, R. M.


Gurden, Harold
Macmillan, Maurice (Halifax)
Spans, Rt. Hn. Sir P. (Kens'gt'n, S.)


Hall, John (Wycombe)
Macpherson, Niall (Dumfries)
Stanley, Capt. Hon. Richard


Hare, Hon. J. H.
Maddan, Martin
Stevens, Geoffrey


Harris, Frederic (Croydon, N.W.)
Maitland, Cdr. J. F. W. (Horncastle)
Stewart, Henderson (Fife, E.)


Harrison, A. B. C. (Maldon)
Manningham-Buller, Rt. Hn. Sir R.
Stoddart-Scott, Col. M.


Harrison, Col. J. H. (Eye)
Marlowe, A. A. H.
Storey, S.


Harvey, Air Cdre. A. V. (Macclesfd)
Marples, A. E.
Summers, G. S. (Aylesbury)


Harvey, Ian (Harrow, E.)
Mathew, R.
Sumner, W. D. M. (Orpington)


Hay, John
Maude, Angus
Taylor, William (Bradford, N.)


Head, Rt. Hon. A. H.
Maudling, Rt. Hon. R.
Thomas, Rt. Hn. J. P. L. (Hereford)


Heald, Rt. Hon. Sir Lionel
Maydon, Lt.-Comdr. S. L. C.
Thomas, Leslie (Canterbury)


Heath, Edward
Medlicott, Sir Frank
Thompson, Kenneth (Walton)


Henderson, John (Cathcart)
Milligan, Rt. Hon. W. R.
Thompson, Lt.-Cdr. R. (Croydon, S.)


Hicks-Beach, Maj. W. W.
Molson, A. H. E.
Thornton-Kemsley, C. N.


Hill, Rt. Hon. Charles (Luton)
Moore, Sir Thomas
Tiley, A. (Bradford, W.)


Hill, Mrs. E. (Wythenshawe)
Morrison, John (Salisbury)



Hill, John (S. Norfolk)
Nabarro, G. D. N.
Touche, Sir Gordon


Hirst, Geoffrey
Nairn, D. L. S.
Tweedsmuir, Lady


Holland-Martin, C. J.
Neave, Airey
Vaughan-Morgan, J. K.


Holt, A. F.
Nicholls, Harmar
Vickers, Miss J. H.


Hornsby-Smith, Miss M. P.
Nicholson, Godfrey (Farnham)
Vosper, D. F.


Horobin, Sir Ian
Nicolson, N. (B'n'm'th, E. &amp; Chr'ch)
Wade, D. W.


Horsbrugh, Rt. Hon. Dame Florence
Nugent, G. R. H.
Wakefield, Edward (Derbyshire, W.)


Howard, John (Test)
Oakshott, H. D.
Walker-Smith, D. c.


Hudson. Sir Austin (Lewisham, N.)
O'Neill, Hn. Phelim (Co. Antrim, N.)
Wall, Major Patrick


Hudson, W. R. A. (Hull, N.)
Orr, Capt. L. P. S.
Ward, Hon. George (Worcester)


Hughes, Hallett, Vice-Admiral J.
Orr-Ewing, Charles Ian (Hendon, N.)
Ward, Dame Irene (Tynemouth)


Hughes-Young, M. H. C.
Page, R. G.
Waterhouse, Capt. Rt. Hon. C.


Hulbert, Sir Norman
Pannell, N. A. (Kirkdale)
Watkinson, H. A.


Hurd, A. R.
Partridge, E.
Whitelaw, W.S.I.(Penrith &amp; Border)


Hutchison, Sir Ian Clark (E'b'gh, W.)
Peake, Rt. Hon. O.
Williams, Paul (Sunderland, S.)


Hutchison, James (Scotstoun)
Peyton, J. W. W.
Williams, R. Dudley (Exeter)


Hyde, Montgomery
Pickthorn, K. W. M.
Wills, C. (Bridgwater)


Hylton-Foster, Sir H. B. H.
Pilkington, Capt. R. A.
Wilson, Geoffrey (Truro)


Irvine, Bryant Godman (Rye)
Pitman, I. J.
Wood, Hon. R.


Jenkins, Robert (Dulwich)
Pitt, Miss E. M.
Woollam, John Victor


Jennings, J. C. (Burton)
Pott, H. P.
Yates, William (The Wrekin)


Johnson, Eric (Blackley)
Powell, J. Enoch



Jones, A. (Hall Green)
Price, Henry (Lewisham, W.)
TELLERS FOR THE NOES:




Mr. R. Allan and Mr. Studholme

Motion made, and Question proposed, That the Clause stand part of the Bill.

Mr. K. Robinson: I think we ought to have a further look at the general principle of the Clause before we part with it. It may also be as well to have a look at what Lloyd's is. We know that Lloyd's is an unique institution, and we are all very proud of it, but I do not think that that fact alone is a necessary reason or even an argument why the

underwriting members of Lloyd's should be uniquely treated for Income Tax and Surtax purposes.
There are one or two things about Lloyd's of which we should remind ourselves. Lloyd's have always been excellent advocates in their own cause. This is not the only occasion when they have obtained privileged treatment from the Government—and I do not mean only the present Government. They contrive to


convey in very subtle ways that they are, if not quite a charitable organisation, at least a body which is established to render a service to our nation and to industry. They are, in fact, pursuing the motive of private profit with a single-mindedness which is remarkable even in the City of London; and they are, incidentally, performing a service to the capitalist system, but only incidentally.
Possibly some hon. Members, certainly on this side of the Committee, do not know exactly how Lloyd's is made up. Lloyd's is a collection of individuals; they are banded together in syndicates, each quite small, each with an underwriting agent who accepts insurance risks on behalf of what are called his underwriting names. The names for the most part play no part whatever in the working of Lloyd's. Like holders of ordinary shares in private industry they provide the risk capital, and, as in private industry, the rewards for providing the risk capital are out of all proportion to the risks involved.
Underwriting members, who include several hon. Members opposite but not, I think, many on this side of the Committee, become members of Lloyd's by depositing with the Corporation of Lloyd's a considerable sum in cash or in negotiable securities. In the pre-war days when I was at Lloyd's—not, I assure hon. Members, as an underwriting member—this was a sum measured in thousands of pounds. It is now, I understand, measured in tens of thousands of pounds. The member-elect, having provided this sum of money, having found sponsors, having furnished references, and having passed the scrutiny of the Committee of Lloyd's, then need do nothing more for the rest of his life but pay into his bank the annual or half-yearly cheque which represents his share of the underwriting profits of the syndicate—that is, of course, if he is lucky. Despite the recent rather serious case of fraud on the part of a Lloyd's underwriter, most underwriting members are lucky to a greater or a lesser degree.
The underwriting member, as the Financial Secretary pointed out during the Second Reading debate, is liable to the extent of the whole of his personal fortune. There is no limited liability, and, of course, that is the reason Lloyd's security is so good, and the reason

the security is so good is that they get such dollar business as is available. I am totally unconvinced by the argument of the Financial Secretary that these special incentives are needed to induce Lloyd's underwriters to write dollar business. It is very seldom that, although the underwriting member is liable to the extent of his private fortune, he even has to draw on the amount he has deposited with the Corporation. So we see this concession against its true background.
7.0 p.m.
It is a concession to a comparatively small number of individuals who are among the richest people in Great Britain. So far as the vast majority of them are concerned, it is a concession in respect of unearned income. Whatever the Commissioners of Inland Revenue may say, from the commonsense point of view this is unearned income, if ever there were such a thing. So we see that this is a concession which is wholly of a pattern with the Chancellor's financial and taxation policy. It is just one more example of giving to him that hath. In order to do that, it has clearly been necessary to take away from him that hath not, under Clause 1 of the Bill, which I should be out of order in discussing now. This very special tenderness has always been shown by the right hon. Gentleman to the better-off section of the community, and we cannot find many sections better off than this particular one.
In explaining the Government's motives in reply to the Amendment on which we have just voted, the Financial Secretary got into very deep water indeed, and I hope that in the interval which has passed since then he has gathered some more information which will allow him to extricate himself. I do not feel at all satisfied by the vague assurance that the accountants will know all about it in the end. I think that it is right that this Committee should know all about it; and should know exactly how this concession is to be operated.
I would point out one very important fact. The right hon. Gentleman says that everything is all right if the underwriting member retires. All these difficulties arise only when he dies in harness. But almost all underwriting members of Lloyd's die in harness. There is no incentive to induce any Lloyd's underwriter to retire. He need not do any work at all; he is


getting a fat income on a deposit which was made years ago with the Corporation—so what inducement is there for him to retire? He gains very substantial benefit.
I hope that the Financial Secretary will tell us how the Commissioners of Inland Revenue are to distinguish those parts of the special reserve fund which come under the 1949 and 1952 concessions and those parts which, if this Clause is passed, will be the 1955 concession. I am extremely unhappy about the whole of this concession. I am not at all convinced that it is necessary or desirable. I am not at all sure that it will help our dollar earnings, and I am not convinced that, in the absence of any figures from the right hon. Gentleman, we ought to encourage Lloyd's insurance market to underwrite dollar business at all.

Mr. Beresford Craddock: I will keep the Committee for only a few minutes. I should like to return to the question which I put to my right hon. Friend in our previous discussion, and which has been raised 'again in the final sentence of the speech of the hon. Member for St. Pancras, North (Mr. K. Robinson). It seems to me, if my understanding of this Clause is correct, that we shall get into a most complicated situation in the future. I should like to suggest that in the interests of trying to simplify the methods of assessment for taxation purposes this point might be well looked at again.
As I understand, at present 35 per cent. of the profits go into a special reserve fund.

Mr. K. Robinson: May go.

Mr. Beresford Craddock: I am assuming for the purpose of illustration that the 35 per cent. does go into the reserve fund. I am only dealing with the case where the underwriter dies. I should explain to the Committee that I have no interest direct or indirect, in Lloyd's at all, that I know very little about how it works, and I am raising this from the point of view of taxation only because I believe that we should try to simplify the methods of assessing a tax which this Clause seems to complicate.
Thirty-five per cent. of the profits, if an underwriter dies, goes into his estate and attracts Estate Duty in the normal way. When this Clause becomes law the

amount that can be put into reserve is 50 per cent. When an underwriter dies the 35 per cent. goes into his estate and attracts duty in the ordinary way but the amount that represents the 15 per cent. has to be calculated back each year for the purpose of Surtax. Let us take the extreme case of an underwriter practising in his profession for 30 or 40 years. The task of his executors will be that they have to take the amount of the fund which represents the 15 per cent. contribution, and for each of those 40 years they have to arrive at what he would have paid by way of Surtax.

Mr. Robinson: Complicated as this is, I think that that would be true so long as this fund were merely a fund into which sums were put, but it becomes even more complicated when one realises that this is a fund out of which funds are paid year by year.

Mr. Beresford Craddock: That may well be. That illustrates the complexity of this Clause.
I have raised this matter because I feel strongly that all efforts should be made to simplify tax assessment rather than to complicate it, and this strikes me as a most astonishing complication. I cannot understand why the 15 per cent. could not have been treated in the same way as the 35 per cent. or at least the whole 50 per cent. treated in one way or in another, and I should be grateful to my right hon. Friend if he would clarify the situation.

Mr. Houghton: The way to simplify this matter, as the right hon. Gentleman pointed out, would have been to allow the new limits to enjoy exemption from Surtax on the death of the underwriter in harness as the existing limits are exempt from Surtax. That would have been the simple way, as the right hon. Gentleman said that it would have been—to make the new limits subject to exactly the same relief on the death of the underwriter as the present limits.
The right hon. Gentleman said that that might be going too far, and that as the limits rise it seemed unreasonable to allow the original exemption from Surtax on the estate of the deceased underwriter to continue with the rise in the new limits, bearing in mind that originally the limit was one-quarter of the profits or £1,500, whichever was the smaller, and


then went up to 35 per cent. and £5,000 and is now to go up to 50 per cent. and £7,000.
I think that the Committee will probably agree with the right hon. Gentleman that, complicated as it has become, it is perhaps right that in lifting the limits still further there should be some qualification brought into the scheme now with regard to the continuing exemptions on the death of the underwriter. I want to be quite reasonable about this. I have nothing to do with Lloyd's. I have never been in the place, if there is such a place. I have never insured against twins or for any of the other risks which, I understand, it is possible to insure against.
I candidly think that it would be wrong for the Government now to worsen the conditions of the earlier reserve fund. To that extent I think that the Chancellor is right in saying that the new and restricted conditions on the death of the underwriter shall apply to the excess over the old limit and not to the whole of the reserve. I think that he is right. That money was put into reserve under then existing conditions, and I think that the normal principle which we follow here is that we do not retrospectively worsen conditions when money was deposited for a certain purpose under the conditions then prevailing. I think that he is right in confining this change to the excess. That is fair.

Mr. K. Robinson: Would such a proposal be substantially different from increasing the rate of Estate Duty?

Mr. Houghton: That is arguable. There is a difference between a reserve fund deliberately created under the prevailing conditions at the time and the accumulation of wealth which, so to speak, one cannot help. Death catches us out, and Estate Duty is payable on all we have got. We cannot say that our wealth was a deliberate act. It was incidental, accidental, and all the rest of it; but here was something done under conditions prevailing at that time. However, I agree that it is arguable, and I merely express the opinion that the right hon. Gentleman is being fair and right in restricting this to the excess over the existing limits.
The complicated way in which the calculations will be made on the death of the underwriter is dealt with in paragraphs (a), (b) and (c) of subsection (3).

It is very aggravating to have to go back and calculate Surtax over past years, but the hon. Member for Spelthorne (Mr. Beresford Craddock) will realise that this is not very big money. The excess that the underwriter will leave over the old limits cannot be a large one. It is only a few thousand pounds, at the outside.
I am not at all sure whether it is reasonable to recalculate the thing over past years under this complicated formula. I admit that the simple way might be regarded as a little hard on the estate of the underwriter. Where an underwriter goes out of business and still survives, which my hon. Friend says is a rare occurrence, then the money brought back suffers Surtax at the rate in the year in which it is brought back and on the whole amount that is brought back. One might say that is hard. He might want it to be stepped back over the years of accumulation, but that is the way in which it has been done and it is certainly simple. It would have been simpler, and I do not think that it would have been terribly unfair, to have treated the return of the excess on death on the same footing, because the amount would not be large. We complicate the matter if we bring in the Estate Duty. All we are concerned with here is Surtax.
These moneys have been transferred to a reserve fund as if they had been taxed and as if Profits Tax had been paid on the amount, so that they attract neither Income Tax nor Profits Tax but only Surtax.

Mr. Beresford Craddock: I am most interested in this point. Is not it resolving itself into rather a gamble as to whether the Government would get more by way of Surtax or Estate Duty? It seems to me rather a gamble which will be the greater in the ultimate result.

Mr. Houghton: Yes. If there is any gamble in this, I am sure that the underwriters are prepared to take it, but I can see that there is a refinement there and that according to the amount of Surtax extracted so will the Estate Duty be less. I appreciate the point that, really and truly, there is probably not much in it and we might as well do it simply instead of having the complications set out in subsection (3).
7.15 p.m.
I ask the Financial Secretary, once again, to tell us who asked for all this. He has not told us so far. He said that his right hon. Friend had been "made aware." So have I. I have been made aware that this provision has excited little interest and less enthusiasm among Lloyd's underwriters, and still less do they want it on the terms proposed in subsection (3) regarding the taxation of the excess over the old limits in the event of death. I understand that various people have made the right hon. Gentleman aware that there is simply nothing in this and that it is not worth going on with.
The Committee should be assured that this proposal is really desired; that the underwriters do want it. Surely we should not throw concessions at Lloyd's underwriters that they do not want. I never like to displease people, least of all Lloyd's underwriters. We want to keep on good terms with them, because in three or four years' time there are certain risks that we may want them to underwrite for us, on one side or the other. Let us come to terms with these people, but do they really want this provision on these terms? That seems to be the point and there seems to be strong doubt about it.
I do not think that in principle we can quarrel with the concession. It is too long-established. It was established in the period of the Labour Government, enlarged with, of course, the change in the Profits Tax arrangements at the end of 1951. It was enlarged in 1952, and there is a proposal to increase it still further. The principle is fairly well established, and I would not want to quarrel with it now. But since we are putting up the limit and introducing some new conditions which are a disadvantage to the Lloyd's underwriters, the Committee must be assured that this is necessary, that it is essential from the point of view of dollar earnings and that the Lloyd's underwriters want it and regard it as imperative.
Otherwise, it would be much better to withdraw the Clause, to cut it out of the Bill, so that the matter may be examined at leisure and consultations may be held between now and the next Finance Bill.

Mr. Geoffrey Stevens: Unlike the hon. Member for St. Pancras, North (Mr. K. Robinson), I

think that I am pretty clear about the reasons which led my right hon. Friend the Chancellor to include the Clause in the Bill. It cannot be forgotten that the success of Lloyd's underwriters, and indeed of every other form of British insurance undertaking, in the United States of America can be measured in broad terms by the knowledge of the insured in the United States of the resources behind the insurers who are writing the risks for them.
I should have thought that that was the obvious reason which led my right hon. Friend to introduce the Clause or to accept the principle of it, he being anxious to increase the concessions which Lloyd's underwriters already possess. However, with the hon. Member for Sowerby (Mr. Houghton) and my hon. Friend the Member for Spelthorne (Mr. Beresford Craddock), I confess that I am puzzled about the methods which my right hon. Friend has employed to give effect to his obviously good intentions.
It is obvious to anyone with the great knowledge of Income Tax possessed by the hon. Member for Sowerby that only a very wealthy member of Lloyd's could possibly afford to contemplate as large a sum as £7,000 a year, which is the amount provided in the Clause—50 per cent. of the profits or £7,000 a year—free of Income Tax and non-distributable Profits Tax as well. In those circumstances the estate of the underwriter will be subject, in due course, in respect of that slice of his income, to the higher rate of Income Tax; in other words, Surtax at the highest rate of 18s. 6d. in the £. The consequence is that there is little incentive to this wealthy underwriter to take advantage of these additional concessions, if concessions there be.
The hon. Gentleman the Member for St. Pancras, North talked about the possibility of an underwriter dying after he had retired.

Mr. K. Robinson: Mr. K. Robinson indicated dissent.

Mr. Stevens: I cannot imagine any underwriter being in a position to be able to afford to retire, in any case until the provisions of the Millard Tucker No. 2 Report have been implemented—but that is out of order, I realise, Sir Charles.
1 wonder, as the hon. Member for Sowerby wondered, what would be the


difference in cost if we left things as they stand, with the proviso that the aggregate of the reserve fund accumulated over the years is accounted for as part of the estate of the deceased. That estate will most probably pay a high rate of Estate Duty, possibly even 80 per cent. Can my right hon. Friend tell us what would be the difference in cost to the Inland Revenue? Why are we going to this extreme and complicated length to transfer possibly much the same sum of money from one pocket of the Inland Revenue to another pocket also of the Inland Revenue?
I am puzzled for another reason. Reference has been made to the fact that accountants will be called in to help. Here I must declare an interest. I am not an underwriter but I have clients who are underwriters. I look forward with interest and joy to the calculations over twenty or twenty-five years, and I shall not even have my clients with me to quibble about the bill, only their executors, so it will be easier to settle. Seriously, it will be extremely complicated in twenty-five years' time to reopen these assessments.
Another point which worries me concerns the rather sombre words in subsection (4):
notwithstanding any time limit for the making of assessments.
In a small but moderate experience of taxation affairs I do not know of another instance in which assessments have been normally reopened without time limit, which is usually six years, save in a case of fraud. It seems odd that my right hon. Friend, in endeavouring to assist underwriters, and through them to assist this country towards greater dollar earnings, should do it at the expense of putting underwriters into the dock with criminals. I would like to know the reasons for this marriage of incompatibles.

Mr. Eric Fletcher: Like other hon. Members who have spoken, the more I look at this Clause the less I like it. It does not seem to meet the requirements of justice or to be administratively workable. Nor, as we now hear, does it seem to meet the wishes of those whom it is desired to help, namely, Lloyd's underwriters. I have no special prejudice either for or against Lloyd's underwriters. My only

concern is to try to ensure that the Committee does not, without further examination, agree to a Clause in a Finance Bill which is so extraordinary or so complicated as this one. I should have hoped, in view of the discussion which has taken place this evening, that at the least we should have assurances that the Clause will be radically altered before a later stage.
I also want to ask the Financial Secretary a question on subsection (4). There was an Amendment on the Paper on which this point might have been raised. It seems to me monstrous, as a matter of administrative arrangement, to introduce into our Income Tax legislation a provision which enables the Revenue to reopen assessments notwithstanding any time limit. As one hon. Member said, an underwriter may be in practice for forty years. He may then die. If this Clause is passed, the Revenue would be entitled to make, and his executors would be under an obligation to submit to, a most complicated examination, perhaps contentious, of his Income Tax and Surtax liability going back for thirty or forty years.
That is something which no self-respecting legislature ought to legislate about, and I do not believe that it is necessary. Even if it were a simple matter, it would be indefensible, but think of the complications to which this provision may give rise. It is not as though in every case the sums put to reserve will remain and accumulate. Claims against the fund will be made. In some years there may be large claims, in others there may be no claims. Moreover, some claims will relate possibly to risks underwritten many years ago. Claims will not necessarily all relate to risks underwritten in the year when the claim arises.
The matter does not rest there. We have not yet had an explanation from the Financial Secretary as to how a claim against the fund is to be dealt with. Is it to come out of the first 35 per cent. which is treated under the 1949 and 1952 concessions or is it to come out of the concession under this Bill or is it to come out of both proportionately? I hope that the Financial Secretary will tell us, because there is nothing in the Clause, as I read it, which makes that plain. Suppose a claim arises in a future year as the result of a risk underwritten in an


earlier year when this concession did not operate? How will that claim against the fund be dealt with?
These are only some of the complications which seem to me to arise on the question of principle as to whether it is better to deal with this fund by way of reduction through Estate Duty or Surtax reassessment. I have an open mind about that. It would be almost impossible to prophesy which would be of greater advantage to the Revenue or to the taxpayer, but it seems to me to be the plain duty of the Committee, if we decide to accept the principle of this Clause, to make it as sensible and as capable of easy administration as is possible within the limits laid down by the necessity to give special exemption and privilege or encouragement to Lloyd's underwriters.
I should have thought that to have had a system whereby this reserve fund is created and then, at the underwriter's death or retirement, part of it is brought into calculation for Estate Duty and a lesser part is treated as liable to Surtax reassessment, is probably to make the worst of both worlds.
I agree with my hon. Friend the Member for St. Pancras, North (Mr. K. Robinson); I should have thought that there could be no possible inducement in future—even if there has been in the past—to any underwriter ever to retire, because the provisions for tax liability seem to be so much more heavily weighted in favour of the Inland Revenue upon his voluntary retirement than they would be on his death. Whether this is just or desirable I do not know, but we must assume that, in future, no Lloyd's underwriter will retire. What effect that may have upon other potential Lloyd's underwriters who are waiting to step into the shoes of the existing ones, I do not know.
There are some other points which occur to me, but they are matters of so much detail compared with those which have been raised that I hope that the Financial Secretary will give some clear answers to those points before we proceed further.

7.30 p.m.

Mr. Roy Jenkins: Not for the first time in our discussions on this Bill, the Committee finds itself in a position of extraordinary difficulty. Here we are dealing with a Finance Bill which, as the

Chancellor told us only an hour or so ago, is essentially part of the emergency Budget—in respect of which he did not have time to consider the recommendations of the Royal Commission, but had to make snap decisions—and yet, in the middle of this emergency Finance Bill, he has apparently chosen to force £500,000 worth of concessions upon a group of reluctant Lloyd's underwriters. It would be very difficult for us to agree to proceed under these conditions and, in view of the other provisions of the Bill, to accept a Clause which gives away revenue to this extent, without any indication whether it is desirable or even whether it is desired by anybody.
To save the time of the Committee, I very much hope that the Financial Secretary will tell us that he will not proceed with the Clause. There cannot be any conceivable hurry about it. If there is a case for it, it can be worked out and deployed in next April's Budget. It is not an emergency problem; it is a long-term one. The Financial Secretary should now say that the Government will agree to look at the question again before next April. If he does so, there will be another £500,000 worth of concessions to be given away when we consider the question of Purchase Tax on the Report stage.

Mr. H. Brooke: If the Lloyd's underwriters are as reluctant to take advantage of the Clause as the hon. Member for Stechford (Mr. Roy Jenkins) suggests, there will not be £500,000 worth loss of revenue. That figure was calculated upon the assumption that the Clause will be used, and I think it will be.
I welcome the opportunity to enlarge upon the Clause because, as the Committee may have realised, I was somewhat restricted by the narrow limit of the previous Amendment and could not answer all the questions which were put to me. In particular, in connection with the phrase which I used, which was, I believe, "which the accountants will understand," I am sure that the right hon. Gentleman, who twitted me about it afterwards will appreciate that it would have been out of order to deal in detail with subsection (3) in the discussion of an Amendment to subsection (1). I shall be very glad to answer that point as fully as I can at the appropriate time.
The hon. Member for St. Pancras, North (Mr. K. Robinson) suggested that


Lloyd's underwriters were being uniquely treated for tax purposes. I should have thought that up to now everybody, apart from the hon. Member, had accepted that this was a unique problem—a problem to which Sir Stafford Cripps addressed his mind and which the House sought to tackle six years ago. The problem arises from the fact that Lloyd's underwriters are individuals and are obliged to trade as individuals. Other insurance companies, as companies, are liable to Profits Tax and not to Surtax; Lloyd's underwriters are liable to Surtax, and yet they have a quite unique obligation to build up large reserve funds, because a man who is carrying on business on his own in the insurance world needs a reserve fund against contingent losses of an altogether different order of magnitude from that of the ordinary individual trader. That is the problem with which the 1949 and 1952 legislation sought to deal, and this proposal is a limited extension of that endeavour.
The hon. Member for St. Pancras, North spoke of the service which Lloyd's underwriters gave to themselves and to the capitalist system. Frankly, the only service with which I am concerned is that which Lloyd's underwriters and all those who are engaged in insurance give to our balance of payments. We should be in poor shape if our overseas earnings from insurance were to dwindle and disappear. I suggest that that is the question to which we must direct our attention. That is the reason which brings the Clause into being. It is true that this is an emergency Measure, and I certainly could not advise the Committee not to accept a Clause which, as I shall proceed to show, is of definite importance in strengthening our balance of payments, which is one of the subjects at issue in the Budget.

Mr. Roy Jenkins: The Financial Secretary has twice referred to the balance of payments position and has used the words, "We should be in poor shape if these overseas earnings were to disappear." It is clear that he has in mind some approximate figure, or he would not have used such language. We do not want to tie him down to an exact figure, but surely he can give the Committee a broad estimate, in arithmetical terms.

Mr. Brooke: The hon. Member well knows that our earnings from insurance

fluctuate from year to year. He must also well know that this is a substantial item in our invisible exports, and that we have every incentive to seek to increase it rather than let it diminish.

Mr. Gaitskell: Cannot the Financial Secretary give us a single figure for our net invisible exports from insurance? I hope that we may be given some information upon this subject.

Mr. Brooke: The figure fluctuates from year to year, but it is a substantial amount.
I was asked how these representations came to be made.

Mr. K. Robinson: The Financial Secretary really must give us some information of the net effect of dollar business in this country over the last three years for which figures are available.

Mr. Jenkins: Or any one year.

Mr. Robinson: No, not any one year, but over the last three years.

Mr. E. Fletcher: How does the right hon. Gentleman know that the figure fluctuates if he does not know what the respective figures are?

Mr. Brooke: I am sufficiently acquainted with our invisible exports position, and with the nature of insurance, to know that this figure necessarily fluctuates, and also that it is a substantial one in each year.
The hon. Member for St. Pancras, North asked how, when, and by whom these representations came to be made. I believe that the hon. Member for Sowerby (Mr. Houghton) raised the same point. Representations were made to the Chancellor on behalf of Lloyd's in the course of last winter, before the normal date of the April Budget. The Chancellor, naturally, considered what was said to him, but, owing to the special circumstances of the April Budget—which had to be confined to a very small number of Clauses owing to the imminence of the Dissolution—it was not possible to consider including any provision of this sort. This is the earliest opportunity for doing so.
The hon. Member suggests that this might well be left until next April, but if we did that we could not include the benefit in the current year, unless we


acted retrospectively. The object of including it now is because it is believed by my right hon. Friend to be urgent; to have definite balance of payments importance; and to be necessary for inclusion in the Bill so that it can operate for the benefit of the Income Tax year 1955–56.

Mr. Houghton: Has the right hon. Gentleman any idea whether the representations were made before or after the hurricanes?

Mr. Brooke: The hurricanes took place in 1954. They were after that.
My hon. Friend the Member for Spelthorne (Mr. Beresford Craddock) asked why this provision needed to be so complicated. I apologise for what I said before, when I understood that another Amendment was to be called and thought I should have the opportunity to explain the matter then. My right hon. Friend reached the conclusion that it was essential to do something to increase these limits, but that he would not be justified in simply extending the limits without putting any restriction on the Surtax exemption. That is why he is proposing that we should legislate now to achieve the result that, while sums that have been put to reserve under the old limits will remain free of Surtax on the underwriter's death, the excess which can be put to reserve under the new limits will be liable to Surtax.
My hon. Friend reached that decision largely because he felt that if he put in no such restriction the facilities that would be granted to Lloyd's underwriters would seem to be out of scale with the retention of profits that is usually possible in businesses conducted through the medium of a company. The whole of the purpose is to keep Lloyd's underwriters in as equitable a tax position as is possible, bearing in mind that they are individuals and, therefore, liable to Surtax.
On the other hand, my right hon. Friend would not wish to go so far in his favourable treatment of them in that respect as to carry them beyond any advantage that could accrue if the tax was being applied to a company and not to an individual. That is how my right hon. Friend came to his conclusion that the Surtax exemption should not run for these additional amounts.
7.45 p.m.
Then one has to address oneself to the question which the right hon. Member for Leeds, South (Mr. Gaitskell) very properly but slightly prematurely referred to. When the underwriter dies, how is one to calculate which part of his reserve fund will be liable to Surtax and which will not? This is all set out in subsection (3) and that is why I could not refer to it upon the Amendment to subsection (1). Rather than read out subsection (3), or even try to paraphrase it, I would like to give the Committee a simple example which may make the matter clear.
Suppose we take the letters A and B, and say that what the underwriter puts into reserve up to the 1952 limit is called A and what he puts in under the new limits is called B. We will say that in the first year he puts in A1/B1, in the second year A2/B2, and so on. Let us say that in the sixth year he suffers a loss. The whole of the A payments up to the sixth year—that is, A1, A2, A3. A4 and A5—will be taken first as being withdrawn to meet the loss, before any of the B payments is treated as withdrawn. When the whole of the A payments have been withdrawn, if a further withdrawal is required to meet Fe loss in the sixth year, then the B payments will be drawn upon, beginning with the latest in time and going backwards.
If hon. Members, bearing that explanation in mind, would read subsection (3), which expresses in legal language what I have been explaining, they will see that the matter is comparatively simple. I grant at once that some of these calculations will have to be made over a considerable number of years back. I think the hon. Member for Islington, East (Mr. E. Fletcher) had an Amendment on the Notice Paper which was concerned with that point. I grant that that will happen and that complicated calculations will have to be made, but all the facts will be on record. I am glad to see the hon. Member for Sowerby nodding. I do not think that it will be as difficult a calculation in practice as it sounds.
There is no simpler method by which we can settle this matter, if it is once granted that the exemption from Surtax on the excess above the 1952 limits should not continue. One must have some practical method of allocating the


losses to the payments in the different years, and this is a simple and straightforward one.
I have sought to answer all the detailed questions that have been put to me about the working of the subsection. It is, in the view of my right hon. Friend, most important that we should extend these limits. He has authorised me to say that he will continue to watch the position as it has been watched since 1949 when a provision was put on the Statute Book, with very little Parliamentary discussion. It was amended in 1952 in the light of experience, and it is being amended now, I trust, in 1955, in the light of the new situation that has arisen, thanks to these heavy American losses and the risk that Lloyd's underwriters might be discouraged from underwriting the greatest possible amount of American business unless further action is taken.
There must be unity on both sides of the Committee that it is desirable that this business should be done because it is, over the long run, profitable to this country, and we cannot afford to miss any chance of exports, visible or invisible. That is why the subsection is in the Bill. It could not wait until next April, though that would have been a simpler course, because it would not have been possible then to make any of the benefit accrue in the tax year 1955–56.

Mr. Gaitskell: Most Members of the Committee agree that there is a case in principle for a special arrangement about persons like Lloyd's underwriters who are not limited companies and are liable to pay Surtax on profits in a way in which companies are not. I am sure, too, that all hon. Members agree that if a real case can be made out for a particular tax concession on the ground that it will substantially increase our dollar exports, visible or invisible, we should not be disposed to quarrel with it. But I do not feel that the connection between these two things has yet been established.
It is all very well to say that when Sir Stafford Cripps introduced the first concession of this kind, in 1949, it went through without any discussion. It did, but the amounts then involved were very different from those which we are now considering. I think that the limits then were £1,500, and 25 per cent. of the profits. Now they are £7,000—nearly five times as much on the one side and,

say, twice as much on the other. What may be perfectly reasonable when the figure is small, as it was in 1949, may be far from reasonable when it becomes large.
It is for that reason that my hon. Friends, and hon. Gentlemen opposite, have been very critical of this Clause. It really is not good enough to say to the Committee, as did the Financial Secretary, that he knows the earnings are substantial and knows that they fluctuate, but cannot give us a single figure for any year as to what the earnings are. If he has no information about the figures, how does he know that they are substantial? It does not make sense.
We were always under the impression before the war that there were invisible exports from insurance. I must confess at once that on this side we certainly do not now know what the present dollar position is. My hon. Friend the Member for St. Pancras, North (Mr. K. Robinson) made a good point when he asked what the net gain was. We receive these premiums, but we also have to make substantial payments. We are told that the hurricanes have made a difference. 1; is extraordinary to argue that our tax laws should be permanently altered because of an event in one year—1954. Had we heard that there was a serious danger of default or something like that it would have been some sort of argument, but nothing has been put forward.
It is for those reasons that we have pressed the Financial Secretary to consider the Clause again and to see whether some or other of the Amendments, moved or not, could be considered before the Report stage. Apart from Amendments, we have asked whether he would consider what has been said by hon. Members on different sides. I see that the right hon. Gentleman the Chancellor of the Exchequer is here. I would ask him whether he is prepared to look at the Clause again, read what has been said in the debate and reconsider the Clause with a view to making changes on Report. If he is so prepared I should advise my hon. Friends to allow the Clause to go through, but if we receive an adamant refusal, as we have done up to now from the Government, to consider any changes at all then—although I must confess to the Committee that such was not our original intention—in the light of the


treatment we have received, I would advise my hon. Friends to divide the Committee.

Question put:—

The Committee divided: Ayes 235, Noes, 179.

Division No. 66.]
AYES
[7.52 p.m.


Agnew, Comdr. P. G.
Grimston, Hon. John (St. Albans)
Marlowe, A. A. H.


Aitken, W. T.
Grimston, Sir Robert (Westbury)
Marples, A. E.


Allan, R. A. (Paddington, S.)
Grosvenor, Lt.-Col. R. G.
Mathew, R.


Alport, C. J. M.
Curden, Harold
Maude, Angus


Amory, Rt. Hn. Heathooat (Tiverton)
Hall, John (Wycombe)
Maudling, Rt. Hon. R.


Arbuthnot, John
Hare, Hon. J. H.
Maydon, Lt.-Comdr. S. L. C.


Armstrong, C. W.
Harris, Frederic (Croydon, N.W.)
Milligan, Rt. Hon. w. R.


Ashton, H.
Harrison, A. B. C. (Maldon)
Moore, Sir Thomas


Atkins, H. E.
Harrison, Col. J. H. (Eye)
Morrison, John (Salisbury)


Baldock, Lt.-Cmdr. J. M.
Harvey, Air Cdre. A. V. (Macclesfd)
Nabarro, G. D. N.


Baldwin, A, E.
Hay, John
Nairn, D. L. S.


Balniel, Lord
Head, Rt. Hon. A. H.
Neave, Airey


Barber, Anthony
Heald, Rt. Hon. Sir Lionel
Nicholls, Harmar


Barlow, Sir John
Heath, Edward
Nicholson, Godfrey (Farnham)


Barter, John
Henderson, John (Cathcart)
Nicolson, N. (B'n'm'th, E. &amp; Chr'ch)


Baxter, Sir Beverley
Hicks-Beach, Maj. W. W.
Nugent, G. R. H.


Bevins, J. R. (Toxteth)
Hill, Rt. Hon. Charles (Luton)
Oakshott, H. D.


Bidgood, J. C.
Hill, Mrs. E. (Wythenshawe)
O'Neill, Hn. Phelim (Co. Antrim, N.)


Birch, Rt. Hon. Nigel
Hill, John (S. Norfolk)
Orr, Capt. L. P. S.


Bishop, F. P.
Hinchingbrooke, Viscount
Orr-Ewing, Charles Ian (Hendon, N.)


Body, R. F.
Hirst, Geoffrey
Page, R. G.


Boyle, Sir Edward
Holland-Martin, C. J.
Pannell, N. A. (Kirkdale)


Braine, B. R.
Holt, A. F.
Partridge, E.


Bromley-Davenport, Lt.-Col. W. H.
Horobin, Sir Ian
Peyton, J. W. w.


Brooke, Rt. Hon. Henry
Horsbrugh, Rt. Hon. Dame Florence
Pickthorn, K. W. M.


Brooman-White, R. C.
Howard, John (Test)
Pilkington, Capt. R. A.


Buchan-Hepburn, Rt. Hon. P. G. T.
Hudson, Sir Austin (Lewisham, N.)
Pitman, I. J.


Burden, F. F. A.
Hudson, W. R. A. (Hull, N.)
Pitt, Miss E. M.


Butcher, Sir Herbert
Hughes Hallett, Vice-Admiral J.
Pott, H. P.


Butler, Rt. Hn. B. A.(Saffron Walden)
Hughes-Young, M. H. C.
Powell, J. Enoch


Campbell, Sir David
Hulbert, Sir Norman
Price, Henry (Lewisham, w.)


Carr, Robert
Hutchison, Sir Ian Clark (E'b'gh, W.)
Prior-Palmer, Brig. O. L.


Cary, Sir Robert
Hutchison, James (Scotstoun)
Profumo, J. D.


Channon, H.
Hyde, Montgomery
Raikes, Sir Victor


Chichester-Clark, R.
Hylton-Foster, Sir H. B. H.
Ramsden, J. E.


Clarke, Brig. Terence (Portsmth, W.)
Irvine, Bryant Godman (Rye)
Rawlinson, P. A. G.


Cole, Norman
Jenkins, Robert (Dulwich)
Redmayne, M.


Conant, Maj. Sir Roger
Jennings, J. C. (Burton)
Rees-Davies, W. R.


Cordeaux, Lt.-Col. J. K.
Johnson, Eric (Blackley)
Remnant, Hon. P.


Corfield, Capt. F. V.
Jones, A. (Hall Green)
Renton, D. L. M.


Craddook, Beresford (Spelthorne)
Kaberry, D.
Ridsdale, J. E.


Crookshank, Capt. Rt. Hn. H. F. C.
Keegan, D.
Rippon, A. G. F.


Crosthwaite-Eyre, Col. O. E.
Kerby, Capt. H. B.
Robertson, Sir David


Crouch, R. F.
Kerr, H. W.
Robson-Brown, W.


Crowder, Sir John (Finchley)
Kirk, P. M.
Rodgers, John (Sevenoaks)


Crowder, Petre (Ruislip—Northwood)
Lagden, G. W.
Roper, Sir Harold


Cunningham, Knox
Lambton, Viscount
Ropner, Col. Sir Leonard


Dance, J. C. G.
Lancaster, Col. C. G.
Schofield, Lt.-Col. W.


Davidson, Viscountess
Langford-Holt, J. A.
Scott-Miller, Cmdr. R.


Deedes, W. F.
Learner, E. H. C.
Sharples, Maj. R. C.


Dodds-Parker, A. D.
Leavey, J. A.
Shepherd, William


Donaldson, Cmdr. C. E. McA.
Leburn, W. G.
Smithers, Peter (Winchester)


Doughty, C. J. A.
Legh, Hon. Peter (Petersfield)
Smyth, Brig. J. G. (Norwood)


Duncan, Capt. J. A. L.
Lindsay, Hon. James (Devon, N.)
Soames, Capt. C.


Duthie, W. S.
Lindsay, Martin (Solihull)
Spearman, A. C. M.


Eden, Rt. Hn. Sir A. (Warwick &amp; L'm'tn)

Speir, R. M.


Farey-Jones, F. W.
Linstead, Sir H. N.
Spens, Rt. Hn. Sir P. (Kens'gt'n, S.)


Fell, A.
Lloyd, Rt. Hon. Selwyn (Wirral)
Stanley, Capt. Hon. Richard


Finlay, Graeme
Low, Rt. Hon. A. R. W.
Stevens, Geoffrey


Fisher, Nigel
Lucas, Sir Jocelyn (Portsmouth, S.)
Stewart, Henderson (Fife, E.)


Fleetwood-Hesketh, R. F.
Lucas-Tooth, Sir Hugh
Storey, S.


Fletcher-Cooke, C.
Macdonald, Sir Peter
Summers, G. S. (Aylesbury)


Freeth, D. K.
McKibbin, A. J.
Sumner, W. D. M. (Orpington)


Gamer-Evans, E. H.
Mackie, J. H. (Galloway)
Taylor, William (Bradford, N.)


George, J. C. (Pollok)
McLaughlin, Mrs. P.
Thomas, Rt. Hn. J. P. L. (Hereford)


Glover, D.
Maclay, Rt. Hon. John
Thomas, Leslie (Canterbury)


Godber, J. B.
McLean, Neil (Inverness)
Thompson, Kenneth (Walton)


Gomme-Duncan. Col. A
Macleod, Rt. Hn. Iain (Enfield, W.)
Tiley, A. (Bradford, W.)


Gower, H. R.
MacLeod, John (Ross &amp; Cromarty)
Touche, Sir Gordon


Graham, Sir Fergus
Macmillan, Rt. Hn. Harold (Bromley)
Tweedsmuir, Lady


Grant, W. (Woodside)
Macmillan, Maurice (Halifax)
Vaughan-Morgan, J. K.


Grant-Ferris, Wg Cdr. R. (Nantwich)
Macpherson, Niall (Dumfries)
Vickers, Miss J. H.


Green, A.
Maddan, Martin
Vosper, D. F.


Gresham Cooke, R.
Maitland, Cdr. J. F. W. (Horncastle)
Wade, D. W.


Grimond, J.
Manningham-Buller, Rt. Hn. Sir R.
Wall, Major Patrick




Ward, Dame Irene (Tynemouth)
Williams, R. Dudley (Exeter)
Yates, William (The Wrekin)


Waterhouse, Capt. Rt. Hon. C.
Wills, G. (Bridgwater)



Watkinson, H. A.
Wilson, Geoffrey (Truro)
TELLERS FOR THE AYES:


Whitelaw, W.S.I.(Penrith &amp; Border)
Wood, Hon. R.
Mr. Studholme and


Williams, Paul (Sunderland, S.)
Woollam, John Victor
Mr. E. Wakefield.




NOES


Ainsley, J. W.
Griffiths, David (Rother Valley)
Parker, J.


Albu, A. H.
Griffiths, Rt. Hon. James (Llanelly)
Parkin, B. T.


Allen, Arthur (Bosworth)
Hamilton, W. W.
Pearson, A.


Allen, Scholefield (Crewe)
Hannan, W,
Peart, T. F.


Attlee, Rt. Hon. C. R.
Hastings, S.
Popplewell, E.


Awbery, S. S.
Hayman, F. H.
Probert, A. R.


Bacon, Miss Alice
Harbison, Miss M.
Proctor, W. T.


Balfour, A.
Hobson, C. R.
Pryde, D. J.


Benson, G.
Holman, P.
Pursey, Cmdr. H.


Bevan, Rt. Hon. A. (Ebbw Vale)
Houghton, Douglas
Reid, William


Blackburn, F.
Howell, Charles (Perry Barr)
Rhodes, H.


Blenkinsop, A.
Howell, Denis (All Saints)
Roberts, Albert (Normanton)


Blyton, W. R.
Hughes, Cledwyn (Anglesey)
Roberts, Goronwy (Caernarvon)


Boardman, H.
Hughes, Emrys (S. Ayrshire)
Robinson, Kenneth (St. Pancras, N.)


Bottomley, Rt. Hon. A. G.
Hughes, Hector (Aberdeen, N.)
Rogers, George (Kensington, N.)


Bowden, H. W. (Leicester, S.W.)
Hunter, A. E.
Ross, William


Boyd, T. C.
Hynd, J. B. (Attercliffe)
Short, E. W.


Braddock, Mrs. Elizabeth
Irving, S. (Dartford)
Silverman, Julius (Aston)


Brookway, A. F.
Jay, Rt. Hon. D. P. T.
Simmons, C. J. (Brierley Hill)


Broughton, Dr. A. D. D.
Jeger, George (Goole)
Skeffington, A. M.


Brown, Rt. Hon. George (Belper)
Jenkins, Roy (Stechford)
Slater, Mrs. H. (Stoke, N.)


Brown, Thomas (Ince)
Johnson, James (Rugby)
Slater, J. (Sedgefield)


Burke, W. A.
Jones, David (The Hartlepools)
Smith, Ellis (Stoke, S.)


Burton, Miss F. E.
Jones, Jack (Rotherham)
Snow, J. W.


Butler, Herbert (Hackney, C.)
Jones, J. Idwal (Wrexham)
Sorensen, R. W.


Butler, Mrs. Joyce (Wood Green)
Jones, T. w. (Merioneth)
Sparks, J. A.


Carmichael, J.
Kenyon, C.
Steele, T.


Castle, Mrs. B. A.
Key, Rt. Hon. C. W.
Stones, W. (Consett)


Champion, A. J.
King, Dr. H. M.
Stross, Dr. Barnett (Stoke-on-Trent, C.)


Chapman, W. D.
Lawson, G. M.
Summerskill, Rt. Hon. E.


Chetwynd, G. R.
Ledger, R. J.
Swingler, S. T.


Clunie, J.
Lee, Frederick (Newton)
Sylvester, G. O.


Coldrick, W.
Lee, Miss Jennie (Cannock)
Taylor, Bernard (Mansfield)


Collick, P. H. (Birkenhead)

Taylor, John (West Lothian)


Collins, V. J. (Shoreditch &amp; Finsbury)
Lever, Leslie (Ardwick)
Thomas, Iorwerth (Rhondda, W.)


Corbet, Mrs. Freda
Logan, D. G.
Thomson, George (Dundee, E.)


Cove, W. G.
MacColl, J. E.
Thornton, E.


Craddock, George (Bradford, S.)
McGovern, J.
Timmons, J.


Cronin, J. D.
McInnes, J.
Tomney, F.


Crossman, R. H. S.
McKay, John (Wallsend)
Turner-Samuels, M.


Cullen, Mrs. A.
McLeavy, Frank
Usborne, H. C.


Dalton, Rt. Hon. H.
MacMiltan, M. K. (Western Isles)
Viant, s. P.


Deer, G.
MacPherson, Malcolm (Stirling)
Warbey, W. N.


Delargy, H. J.
Mallalieu, E. L. (Brigg)
Weitzman, D.


Dodds, N. N.
Mann, Mrs. Jean
Wells, Percy (Faversham)


Dugdale, Rt. Hn. John (W. Brmwch)
Mason, Roy
West, D. G.


Dye, S.
Messer, Sir F.
Wheeldon, W. E.


Edelman, M.
Mitchison, G. R.
White, Henry (Derbyshire, N.E.)


Edwards, Rt. Hon. John (Brighouse)
Monslow, W.
Wilkins, W. A.


Edwards, Rt. Hon. Ness (Caerphilly)
Moody, A. S.
Willey, Frederick


Edwards, W. J. (Stepney)
Morris, Percy (Swansea, W.)
Williams, David (Neath)


Fletcher, Eric
Mort, D. L.
Williams, Ronald (Wigan)


Forman, J. C.
Moss, R.
Williams, Rt. Hon. T. (Don Valley)


Fraser, Thomas (Hamilton)
Moyle, A.
Willis, Eustace (Edinburgh, E.)


Gaitskell, Rt. Hon. H. T. N.
Mulley, F. W.
Wilson, Rt. Hon. Harold (Huyton)


Gibson, C. W.
Neal, Harold (Bolsover)
Winterbottom, Richard


Gooch, E. G.
Oram, A. E.
Woodburn, Rt. Hon. A.


Gordon Walker, Rt. Hon. P. C.
Owen, W. J.
Yates, V. (Ladywood)


Greenwood, Anthony
Padley, W. E.



Grenfell, Rt. Hon. D. R.
Paling, Will T. (Dewsbury)
TELLERS FOR THE NOES:


Grey, C. F.
Panned, Charles (Leeds, W.)
Mr. Holmes and Mr. J. T. Price.

Orders of the Day — Postponed Clause 4.—(PURCHASES OF SHARES BY FINANCIAL CONCERNS AND PERSONS EXEMPTED FROM TAX.)

8.0 p.m.

Mr. Gaitskell: I beg to move, in page 4, line 34, after "entitled" to insert:
after the twenty-sixth day of October, nineteen hundred and fifty-five.

The Temporary Chairman (Mr. James H. Hoy): Perhaps the Committee might consider, with this Amendment, the Amendments in line 38, and the first Amendment in line 45; in page 5, lines 7, 26 and 33.

Mr. Gaitskell: I quite agree, Mr. Hoy, that all those Amendments hang together.


The operative Amendment is not the first Amendment, which I have moved, but the very simple Amendment which occurs in a number of places on the Order Paper, in the first instance in page 4, line 38, to leave out "and" and to insert "or."
This is an even more complicated Clause than the previous Clause, and it will be necessary for me to make a brief explanation, even at this stage, of what is involved. There are a number of Amendments down of a technical character, but even before we reach them I think I must give an explanation of what is involved.
The Clause deals with what is called dividend stripping, which, as I understand it, arises under two conditions: first, when a company has substantial undistributed profits which can be paid out in dividends and presumably are therefore available in liquid form; and, secondly, as a bargain, a transaction, between a person or a company whom I might describe as a "normal" taxpayer and an "abnormal" taxpayer. By "normal," I mean an individual who is paying Income Tax and Surtax, if it is an individual, in the ordinary way, and by "abnormal" I mean either a finance company the business of which is to buy and sell shares, and which is therefore liable to taxation on what would be capital profits in the case of other persons, or an institution such as a charity, which is exempt from taxation.
Those two conditions produce the following types of bargain. A finance company, for example, buys up a controlling interest in another company of the kind which I have described—that is to say, a company with large undistributed profits. Let us say these amount to £150,000. The finance company then proceeds to distribute to itself £50,000 of accumulated dividends, net of tax, the tax having previously been paid by the company which it has bought. It then proceeds to resell the company for £100,000. It has taken £50,000 out of the company, it paid £150,000 for it originally, and it sells the company for £100,000. It can thus show a loss of £50,000 on the capital transaction and for that reason is able to claim a tax rebate, at 8s. 6d. in the £, of £21,000, in round figures. It has therefore spent £150,000

and received back £171,000, so that the final outcome is a gain of £21,000.
Another case is where a charity, rather than a finance company, is involved and where the charity does exactly the same thing—for example, buys the other company for £150,000, draws out £50,000 in dividends, resells the company for £100,000 and then does not claim the capital loss in this case, because that would not be involved, but claims the return of tax on the £50,000 dividends which it has received, and thus gets a net gain of £21,000 or thereabouts.
I do not doubt that in order to achieve these bargains there is a certain sharing in the advantages to be gained from the tax authorities, so that I suppose in the instance which I have given the price to be paid for the company would be rather higher than I have suggested. It may be any figure, according to how the bargaining goes.
I want to make it quite plain from the start that we entirely support the Government's action in proposing to stop this very serious piece of tax-avoidance. Indeed, it is our view, from what we have heard about these matters, that it might well have been stopped earlier. I think that the Government are to be severely criticised for not having done this at least in their April Budget. They would certainly have received strong support from this side of the Committee and not much time would have been wasted. From what the Financial Secretary has said in answers to Questions, it is evident that the losses from this type of transaction have been growing very greatly in recent years and months.
Our second point of criticism is that in our opinion the Clause does not go far enough. I apologise for having to explain the background to the Amendment, but it would have been quite unintelligible without such an explanation. The Amendment is intended to strengthen the operation of the Clause because, as we understand the Clause, it catches only a finance company, or a charity for that matter, which acquires the controlling interest in another company after 26th October last and then proceeds to distribute the dividend within six years. A company which has already acquired the controlling shares in another company, has in fact already engaged upon this business but has not so far


drawn off the cream and taken advantage of the tax situation, is still able to do so, according to our reading of the Clause.
The reason is that the conditions laid down in the Bill are that the only companies which are caught by the Clause are those which actually buy the shares after the date of the Budget and proceed to distribute the dividends within six years. It seems to us quite wrong that those already engaged on this—I will not say nefarious type of transaction as that would be an unfair word, perhaps—extremely doubtful type of transaction, who have been benefiting at the expense of the Revenue and the country over a considerable time, should be allowed to do so.
Our Amendment does at least go some way to prevent that, because by substituting the word "or" for "and" it would catch the company which has bought the shares, provided it distributed them within six years. It is not necessary, as a result of the Amendment, for the shares to be bought after the Budget date. By our Amendment the company which has bought shares even before the Budget but not distributed them would be caught. We believe that to be a very reasonable and sensible Amendment, and we very much hope that the Government will be able to accept it.
We have proposed that the same change should be made in the case of a charity. There may be a difference between the two cases and for my part I should say the strongest argument arises in the case of a company. I think we would all feel a little more sympathetic towards a charity than towards a finance company, but if the Government take the view that there is a strong case against one type of tax avoider and not such a strong case against the other type, I think that my hon. Friends, after listening to the arguments, would not adhere literally to the terms of every one of these Amendments, but would be prepared to see some of them accepted on the lines I have just indicated and others rejected.
So far as I see, the only argument which can be adduced against what we are putting forward is that to do so would be in some way retrospective. I do not see that that applies in this instance. After all, we are not saying that we should make people pay tax which they

did not pay previously on a transaction which has been completed, but we say that if they now proceed to draw out a dividend on which they expect to make a profit in one way or another they should not get away with it. I do not regard that as in any way retroactive legislation.
I do not enter the general argument which has occurred so often as to the virtues and vices of such legislation. I do not think it arises in this case. The plain fact is that this practice has been going on far too long. The cost involved is remarkably heavy. In reply to Questions by my right hon. Friend the Member for Huyton (Mr. H. Wilson), the Financial Secretary admitted that it was more than £4 million a year and that, I think, is not the full story. I know that my right hon. Friend has further comments to make on this matter if later he catches your eye, Mr. Hoy. In these circumstances, we feel it our duty to strengthen the Clause, and I very much hope that the Government will accept the Amendment.

8.15 p.m.

Mr. Houghton: I hope that the Government will give serious consideration to these Amendments. In an earlier debate we heard an explanation of why this, and perhaps other things, were not included in the Finance Bill following the April Budget, but I am quite sure that the need for doing something arose long before last April.
A few moments ago, when dealing with representations by Lloyd's underwriters, the Financial Secretary to the Treasury said that although the Chancellor had heard those representations during last winter, unfortunately he could not do anything in the last Finance Bill because he had to keep it short owing to the Parliamentary timetable and the impending General Election. Just as perhaps Lloyd's underwriters had their concession deferred, so dividend strippers have had a check on their nefarious activities deferred, and a lot of money has gone into a few pockets because the Chancellor was unable to deal with the matter properly immediately before the General Election.
The General Election accordingly had a beneficial effect on the fortunes of the Government, accompanied quite accidentally and unintentionally by a benefit


to the fortunes of the dividend strippers. Whilst nothing can be done at the moment to put the clock back over the benefit conferred on the Government, there is no reason at all why the clock should not be put a little way back to deal with the activities of dividend strippers which have gone unchecked in the meantime.
The Committee knows my views on this kind of racket. I realise that there are strong differences of opinion about the morality of these tax avoidance devices. Some say, supported by learned judges and others who are supposed to know, that every citizen can so arrange his affairs as to attract the smallest amount of tax and no one shall say him nay. So long as he can do it legally he is perfectly entitled to do so. If the Legislature does not like it, it can stop it. It is just as simple as that, with the result that our tax legislation becomes more complicated as years go by, littered up and cluttered up with all sorts of complex provisions designed to stop these ingenious devices for avoiding payment of tax
In connection with the Excess Profits Levy and similar special imposts we have written into the legislation on the subject an overall provision against activities deliberately designed to evade the payment of tax which otherwise would be due, but in regard to the main code of Income Tax there is no such overriding provision. We deal with each loophole as we find it and close it completely, or not at all, according to how legislation can be drafted to deal with it. This Committee becomes a stopper-up of loopholes. Really it is a most demoralising occupation. It is like constantly reviewing and amending law with a gang of thieves and vagabonds crowded in Parliament Square going about their wicked intentions whilst waiting for the Legislature to put them out of business.
These tax avoiders go about their work so quietly and secretly that it is only when the evidence which the Board of Inland Revenue can get from various officers throughout the country is brought to the Board that it can say, "There is a new racket—a new loophole—let us watch it." The Board watches it and asks all the local officers who encounter that sort of attempt to evade tax to report it centrally so that it can be watched as the practice grows and, when the time comes,

it acquaints the Chancellor of these activities in the hope that he can do something about them.
Here we are dealing with such a case. Partly because of the time which must have elapsed in seeing whether it was serious enough for legislation to be undertaken and partly because of the difficulty of introducing legislation after the practice was shown to require legislation in the circumstances which I have mentioned, we now find that the amount of revenue which is being stripped off in this instance reaches a sum running into six figures. I do not know why we should be so coy about these figures. If it is a matter of six figures, let us say what the figures are. We got this information only by asking a question. It is quite serious, because the number of people indulging in this kind of tax avoidance is probably not very large, and therefore, there is some big money being made somewhere.
I hope the Government will deal with this device strongly and firmly when it arises. We have said many times before that those who find the tax system under P.A.Y.E. extracting every penny of tax from their earnings, who have no investments to manipulate, no capital gains to make and no activities which can draw off some relief from the burden of taxation, resent this sort of thing, and quite rightly resent it. It is our job here to give a reassurance to the great mass of taxpayers, who have no escape from the clutches of the tax gatherer, but who suffer the deduction of every penny of the tax which the law demands, that when we see these rackets, we will stop them firmly, and if necessary reach back to recover some of the money lost.
I do not think any Member of this Committee will dispute the general rightness of that approach. I have no objection in principle to restrospective legislation. Certainly I do not see why people who have been purposely defeating the tax gatherer by using this device to lessen the burden on themselves should hide behind any general principle that we do not deal with them retrospectively. If they could gain retrospectivly they would do so, and quite a number of them do. We know that some people have discovered a means of tax avoidance and have claimed repayment for past years, if the law permits them to do so; and I think that we should have no scruples about


applying such reasonable retrospective measures as are required in particular circumstances.
These Amendments are not, in the strict sense of the terms, retrospective legislation, and so that objection is really removed. They are an attempt at least at stopping the dividend strippers, and I therefore hope that we shall have a satisfactory reply from the Government.
I say, in conclusion, that there have been few Finance Bills in my short experience in this House which have gone through the whole of the Committee stage with so few concessions having been made by the Chancellor of the Exchequer. We have had only rabbit skins, boottees and baskets, as far as I can recall, made the subject of Purchase Tax concessions. Now, we are not asking for a concession for the taxpayer, but asking for stronger measures to deal with an admitted evil. We are asking that something shall be done which the Government can in no way describe as stimulating inflationary tendencies, putting more impetus behind consumer demand or aggravating the present economic situation. This is a matter of justice, in which the State, the Legislature and the taxpaying public expect the Committee to deal adequately with a device which is a patent avoidance of tax and should be dealt with quite firmly.

Mr. Pitman: I am very happy to join with the right hon. Member for Leeds South (Mr. Gaitskell) and the hon. Member for Sowerby (Mr. Houghton) in supporting my right hon. Friend the Chancellor in stopping this dividend stripping. I am sure that the hon. Member for Sowerby is right in saying that the whole opinion of the Committee is behind that general principle. In other words, we join him in his stopping-up of loopholes. I do not know whether Jack Warner was a constituent of Sowerby, but I hope that the hon. Member for Sowerby, the next time he uses the phrase "a stopper-up of loopholes," will make an effort at simulating his local dialect.
The two points which I should like to make refer to the distinction which has to be drawn. I follow the argument of the right hon. Member for Leeds, South in his £150,000 case, but I would point out that the figures happened to disguise—though the right hon. Gentleman was not intending to disguise it—a fundamental

dissimilarity between the two cases, because in the case of the finance company they have recovered tax on £50,000 by reason of a capital loss, whereas the £50,000 dividend to a charity led to a tax recovery by reclaim of tax, a different method which happened to be the same amount.

Mr. Gaitskell: I thought I made that clear.

Mr. Pitman: When that is made clear, it makes it very much easier for us to discuss this very difficult point, because I wish to emphasise the distinction that, as far as the charity is concerned, if it is paying no capital to the vendor by reason of its ability to gain a tax reclaim, then there is nothing wrong with what is happening at all.
What this Committee is really objecting to is the case in which some of the tax benefits which this Committee, in its wisdom, intended for charity go to the vendor and not to the charity. In the case of the finance company, the issue is directed solely to the fact that a finance company, since it deals with stocks and shares where we might deal with cakes and buns, treats these as revenue items of expenditure and of income, and receives the tax benefit for any losses in that respect. It is such a fundamental difference that it is important to make the distinction.
Secondly, this leads right on to one point on which I want to put a question to the Financial Secretary. If we were to make this provision retrospective in this way, would it not be extraordinarily hard on a charity, particularly one which had not passed on any such benefit to the vendor but which was doing a perfectly legitimate thing, which any of us can do in any company or in any other way, by taking that taxation benefit to which as citizens we are entitled?

Mr. E. Fletcher: I am glad that the hon. Member for Bath (Mr. Pitman) has pointed out the distinction between, on the one hand, an operation conducted between a private individual and a finance company and, on the other hand, an operation between a private individual and a charity. I think it will be necessary, if not on this Amendment, at any rate on the Question, "That the Clause stand part of the Bill," to see where this argument leads us. If an operation of


the first kind is racketeering, as I think it is, I would be loath to think that it ceases to be racketeering because one of the parties to the transaction is what is sometimes called a charity.
Charities are of different kinds and it is notorious that the whole law of charitable trusts has become immersed in considerable confusion. There are some valid charities, the purposes and objects of which we all appreciate and subscribe to it we can, but there are a great many other so-called charities whose objects are much more dubious and whose practices raise at any rate a doubt as to whether they are entitled to the full exemption from any taxation which the existing law allows them.
8.30 p.m.
I should not have thought that it was true of any charity—certainly, it cannot be true of all charities—that it is permissible for them to make use of the existing law of the land which enables them to enter into a transaction with an individual whereby he avoids a great deal of tax liability and the charity gets considerable unconvenanted benefit which no other company or concern would get. If we are to examine that, we should consider what the Royal Commission said about the privileged position of charities in our tax law, and we shall have to think something about the case for reform, which is so well argued in paragraph 168 and other paragraphs.
The size of the problem is very large. As the Royal Commission pointed out, the present position is that about 110 trusts ranking as charities are known to the Charity Commissioners, and the present annual cost of the exemption is estimated at about £35 million of tax. I do not want to elaborate the ethics, or lack of ethics, of dividend stripping so far as charities are concerned beyond having entered that caveat that it does not follow as a matter of course that one is more sympathetic to tax evasion if one of the perpetrators happens to be entitled to tax exemption by reason of being a charity.
I want to confine myself to the quite narrow point that is raised by this series of Amendments. It seems to me that the arguments are even stronger in the case of the charity than in the case of the financial house. The two Amendments which I have in mind which deal with

charities are those in page 5, lines 26 and 33.
We have not heard any Government spokesman on the merits of this series of Amendments, which seem to me to have overwhelming arguments to support them. If one could anticipate the only possible objection that has occurred to anybody—that there might be some retrospective effect and that the proposal is obnoxious on that ground—I should like to deal with that.
On Second Reading, the Financial Secretary took credit for saying that his object was to kill dividend stripping. If these Amendments are accepted, dividend stripping will become impossible as from 26th October, when the Bill was introduced but unless these Amendments are accepted, dividend stripping will still be legal, at any rate in the case of finance companies and charities which acquired shares of a particular type before 26th October, 1955. Therefore, if these Amendments are accepted they will not prevent anything being done that should not be done today. The only effect of these Amendments will be to prevent dividend stripping in the future both in respect of people who subsequently acquire shares and in respect of people who acquired them in the past.
Let us consider whether there is any objection to that. It seems to me we can test it best in the case of a charity. It does not make much difference whether one takes the example the Financial Secretary gave us or the one that my right hon. Friend the Member for Leeds, South (Mr. Gaitskell) took, but let us take my right hon. Friend's. The argument as I understand—the Economic Secretary will correct me if I am wrong—is that the charity derives much greater advantage from dividend stripping than finance companies. In the example which my right hon. Friend gave of the purchase for £150,000 and the dividend stripping of £50,000, the finance company gets back at 8s. 6d. in the pound £23,000, or whatever it was, representing the loss incurred, but, in the case of a charity, the charity gets back the whole of the tax that was suffered by the company which paid the dividend of £50,000.
That results from the method of tax collection in respect of companies, because companies have to pay their dividend gross—declare it gross—have to pay tax on their profits regardless of


whether their shareholders are normal shareholders, as my right hon. Friend said, or are, perhaps, abnormal shareholders either because they may be liable to Surtax or because they may be charities and, therefore, not liable to tax at all. I think the Economic Secretary will agree that in the case posed the charity would be able to get back the whole of the tax that had been suffered by the company before it paid the dividend of £50,000, which, at 10s. in the £, to take a convenient arithmetical figure, would be another £50,000.
We must assume that charities as well as finance companies have been indulging in this kind of racketeering either because they thought it of some genuine advantage to the charitable object which they promote or else because that was the only way in which they could derive funds. They may or may not have made a bargain with the original vendor whereby they paid him more than they otherwise would have paid in the belief that they could benefit from this dividend stripping. If that is the case, it does not seem to me that they are deserving of sympathy any more than a finance company is deserving of any sympathy. It does not seem to me that if anybody prior to 26th October has, so to speak, perpetrated the first half of this device, but has not yet consummated the crime by actually having conducted the operation of stripping the dividend, that concern is entitled to any sympathy or consideration, or can object to this Amendment on the ground that it is retrospective. It seems to me that such a company should suffer the normal consequences that arise on any change in the law, as, for example, when Income Tax or Purchase Tax or Profits Tax, or any other tax is increased. There is no element of retrospection about this proposal. I hope, therefore, that for the reasons which have been urged, the Government will accept the Amendment.

Mr. Pitman: Has the hon. Gentleman any information that charities have been doing this? I know that we have been talking on principle, but I did not know that there were actual cases.

Mr. Fletcher: Oh, yes. My information is, and I think that it is clear from the way in which the Clause is drawn, that dividend stripping has been taking place

both by finance companies and by charities. I think that this Clause is designed to stop it in both cases. Without betraying any information, I think that the Economic Secretary, to whom no doubt the facts which led the Chancellor to introduce this Clause are available, will know the extent to which charities are involved, as well as finance companies.

The Economic Secretary to the Treasury (Sir Edward Boyle): I think it would be for the convenience of the Committee if I rose now and took up straight away the point which the hon. Member for Islington, East (Mr. Fletcher) has made. To the very best of our knowledge, charities are not known to have exploited this device on any considerable scale. I can assure the hon. Gentleman of that. So far as charities are concerned, this Clause, if I may use the eloquent language of the Inland Revenue, is preventive rather than remedial. It is to prevent abuse, but we have no reason to think that there has been any great abuse by charities in the past.
On one point made by the right hon. Member for Leeds, South (Mr. Gaitskell) I entirely agree that this Clause is extremely complicated, and I am sure the Committee is deeply obliged to him for the extremely lucid exposition which he gave at the start of our discussion. I think that, whatever our differences of opinion may be, in lucidity of exposition of a complicated matter the right hon. Gentleman must take a very high place among Parliamentarians of this era.
As I see it, the set of Amendments with which we are dealing concerns two matters. In the first place—and this was the point on which the right hon. Gentleman laid most stress—the Clause does not apply where the dealing concern acquired the shares before Budget day. That is to say, it does not deal with post-Budget dividends on pre-Budget shares. Where the dealing concern acquired the shares after Budget day, the Clause applies only to dividends paid out of reserve within six years of the acquisition of the shares. I will deal with that point at the same time.
The position was that dividends received up to Budget day on pre-Budget acquisitions ought to be caught if paid within six years of acquisition, and,


furthermore, the dividends on post-Budget acquisitions should be caught without any time limit. On the first point, it is the Government's view that a Clause dealing with pre-Budget acquisitions—that is to say, in the case of post-Budget dividends on pre-Budget shares—would have involved a certain measure, a certain flavour of retrospective legislation which we wanted to avoid.
I can assure the right hon. Gentleman that a great deal of thought has been given to the drafting of this Clause, and if the final version is not satisfactory to hon. Members opposite it is not due to any lack of considering the possibilities. We thought, on the one hand, that it would be contrary to normal precedent to make this Clause retrospective without as it were, giving warning that we intended t deal with this whole abuse of dividend stripping, and, secondly, I thought that the right hon. Gentleman a little understated the extent to which his proposals would be retrospective. This is a very complicated matter and if I do not make myself clear, I am sorry, but I will put it as clearly as I can.
We know that the dividend stripper buys shares and takes a dividend and then sells the shares. We all know that we ought not to allow the dividend stripper, as a trading expense, so much of the purchase price as is equal to the dividend. If the Clause had been drafted that way, I think the Committee will agree that it would have clearly been retrospective to disallow part of the purchase price of shares bought before Budget day; but, as the Committee will realise, for reasons of administrative convenience—and I could explain those but I ask the Committee to believe that they are real ones—we are in the Clause charging the dividend instead of disallowing the relevant part of the purchase price.
8.45 p.m.
It really comes to very much the same thing, because we could not justify taxing the dividend which comes out of a fund of profits which have already paid tax, except on the ground that the dividend represents the disallowance of the relevant part of the purchase price. I put it to the Committee that although in form the Amendment might not seem retrospective, it would, in fact, prove retrospective in substance.
As for the second point of post-Budget acquisitions, I think that I shall be able to satisfy the right hon. Gentleman a great deal more. On this point, I want frankly to give a warning not only to the Committee but to those outside as well. Generally speaking, with regard to post-Budget acquisitions the payment of the dividend follows fairly quickly on the purchase of the shares. The Clause as it stands already catches any dividend paid within six years of the purchase and since, as the Committee is aware, for the purposes of the Clause, dividends are treated as primarily arising out of profits earned by the company after the date of acquisition, it is not very likely that a dividend paid, say, 20 or 30 years after acquisition would come, to any extent, out of pre-acquisition profits.
In any case, to go beyond the conventional six-year period would present a very difficult administrative task, because it would involve getting detailed records of dividends, and of profits available to meet them, for what would really be an almost indefinite future period. Even so, we must keep a very careful watch for any attempts to get round the legislation.
Here, I should like to give a very definite warning. Dividend stripping has proved a profitable game to those who play it, and although we have tried to draw the present legislation tightly, all experience in dealing with tax avoidance experts warns us that clever people may find devious and complicated ways around the legislation. Therefore, I should like to make it absolutely clear, and my right hon. Friend specifically asked me if I would say this tonight, that the position will be watched. If, later, abuses are found to develop outside the six years, the question of tightening up the law may then have to be considered, notwithstanding any administrative problem that would result.
I mean that as a definite warning. We intend to end this device of dividend stripping, and if we find that ways and means are found of getting round the present legislation, my right hon. Friend will not hesitate to reconsider this question again. I hope that, on the second point raised by the Amendment, I have satisfied hon. Members opposite. The first point about retrospection is a complicated one. We


thought that it would be contrary to precedent to make this legislation retrospective without giving warning of our intention. We think that the Amendment moved so lucidly by the right hon. Gentleman the Member for Leeds, South did have a retrospective flavour about it. That is why, although I listened most carefully to the arguments advanced—and I am sure we are all grateful that the issue should have been aired in so clear a form—I ask the Committee to reject the Amendment.

Mr. Gaitskell: I was glad to hear what the Economic Secretary had to say about what he called the second point in the Amendment, that is, the point about the time limit. In particular, I welcome his warning to anybody who intends to defeat the object of the Clause. I can only hope that should the object be defeated in any way, and at some future Committee stage of a Finance Bill it is discussed, we shall not then have the argument put forward that an Amendment from the Opposition is retrospective.

Sir E. Boyle: I can give that assurance unconditionally.

Mr. Gaitskell: I can only hope that the hon. Gentleman will for this purpose, at any rate, be there to substantiate it.
The hon. Gentleman will not be surprised to hear that we were disappointed at what he said about our main point. I cannot see that his argument is a strong one and I want to put an example to him. It is the simple case of a finance company which has purchased a controlling interest in another company before the Budget. No doubt it has done so with the intention of dividend stripping, but no dividend stripping has actually taken place. It would have proceeded in the ordinary way to draw out the dividends and, having done so, it would then have sold its existing interest. As the hon. Members for Bath

(Mr. Pitman) and Islington, East (Mr. E. Fletcher) so rightly stressed, it then gets its gain, odd as it may sound, from the capital loss it has sustained.

All that is taking place after the Budget. The only thing that has taken place before the Budget is the purchase of the company, and it is absurd to say that we are asking for retrospective legislation because we desire to penalise those who carry out this operation of dividend stripping and the sale of the company in order to make the capital loss in order to make the claim after the Budget. I cannot see that there is any justification for the squeamishness of the Economic Secretary in this matter. After all, these people have been getting away with it for a considerable time.

I would not deny that in some cases they may have paid high prices for the companies in question. I have no doubt that that is in the mind of the hon. Gentleman. Neither would I deny that they will now make something of a loss. But when all is said and done, it is not a bad thing that there should be a loss in a few instances of this kind to offset the profits which they have made at the expense of the revenue and of the taxpayers in these last months, indeed, years.

Would the hon. Gentleman be prepared to think again about this matter? I have the feeling that there is a rather more fundamental difference between the two sides of the Committee on this point, and that he is being much too tender to these people. If we can have no offer from the Government benches to think again about this question, there is nothing left for us to do but to divide the Committee and so to press our Amendment as far as we can.

Question put, That those words be there inserted:—

The Committee divided: Ayes 185, Noes 238.

Division No. 67.]
AYES
[8.54 p.m


Ainsley, J. W.
Blenkinsop, A.
Burke, W. A.


Albu, A. H.
Blyton, W. R.
Burton, Miss F. E.


Allen, Arthur (Bosworth)
Boardman, H.
Butler, Herbert (Hackney, C.)


Allen, Scholefield (Crewe)
Bottomley, Rt. Hon. A. G.
Butler, Mrs. Joyce (Wood Green)


Attlee, Rt. Hon. C. R.
Bowden, H. w. (Leicester, S.W.)
Carmichael, J.


Awbery, S. S.
Boyd, T. C.
Castle, Mrs. B. A.


Bacon, Miss Alice
Braddock, Mrs. Elizabeth
Champion, A. J.


Balfour, A.
Brockway, A. F.
Chapman, w. D.


Benson, G.
Broughton, Dr. A. D. D.
Clunie, J.


Bevan, Rt. Hon. A. (Ebbw Vale)
Brown, Rt. Hon. George (Belper)
Coldrick, w.


Blackburn, F.
Brown, Thomas (Ince)
Collick, P. H. (Birkenhead)




Collins, V. J. (Shoreditch &amp; Finsbury)
Jones, Jack (Rotherham)
Pursey, Cmdr. H.


Corbet, Mrs. Freda
Jones, J. Idwal (Wrexham)
Reid, William


Craddook, George (Bradford, S.)
Jones, T. W. (Merioneth)
Rhodes, H.


Cronin, J, D.
Kenyon, G.
Roberts, Albert (Normanton)


Crossman, R. H, 8.
Key, Rt. Hon. C. W.
Roberts, Goronwy (Caernarvon)


Cullen, Mrs. A.
King, Dr. H. M.
Robinson, Kenneth (St. Pancras, N.)


Dalton, Rt. Hon. H.
Lawson, G. M.
Rogers, George (Kensington, N.)


Davies, Stephen (Merthyr)
Ledger, R. J.
Ross, William


Deer, G.
Lee, Frederick (Newton)
Short, E. W.


Delargy, H. J,
Lee, Miss Jennie (Cannock)
Silverman, Julius (Aston)


Dodds, N. N.
Lever, Leslie (Ardwick)
Simmons, C. J. (Brierley Hill)


Dugdale, Rt. Hon. John (W. Brmwch)
Lipton, Lt.-Col. M.
Skeffington, A. M.


Dye, S.
Logan, D. G.
Slater, Mrs. H. (Stoke, N.)


Edelman, M.
MacColl, J. E.
Slater, J. (Sedgefield)


Edwards Rt. Hon. John (Brighouse)
McGovern, J.
Smith, Ellis (Stoke, S.)


Edwards, Rt. Hon. Ness (Caerphilly)
McInnes, J.
Sorensen, R. W.


Edwards, Robert (Bilston)
McKay, John (Wallsend)
Sparks, J. A.


Edwards, W. J. (Stepney)
McLeavy, Frank
Steele, T.


Fletcher, Eric
MacMillan, M. K. (Western Isles)
Stones, W. (Consett)


Forman, J. C.
MacPherson, Malcolm (Stirling)
Stross, Dr. Barnett(Stoke-on-Trent, C.)


Fraser, Thomas (Hamilton)
Mahon, S.
Summerskill, Rt. Hon. E.


Gaitskell, Rt. Hon. H. T. N.
Mallalieu, E. L. (Brigg)
Swingler, S. T.


Gooch, E, G.
Mann, Mrs. Jean
Sylvester, G, O.


Gordon Walker, Rt. Hon. P. C.
Marquand, Rt. Hon. H. A.
Taylor, Bernard (Mansfield)


Greenwood, Anthony
Mason, Roy
Taylor, John (West Lothian)


Grenfell, Rt. Hon. D. R.
Mayhew, C. P.
Thomas, Iorwerth (Rhondda, W.)


Griffiths, David (Rother Valley)
Messer, Sir F.
Thomson, George (Dundee, E.)


Griffiths, Rt. Hon. James (Llanelly)
Mitchison, G. R.
Thornton, E.


Hamilton, W. W.
Monslow, W.
Timmons, J.


Hannan, W.
Moody, A. S.
Tomney, F.


Hastings, S.
Morris, Percy (Swansea, W.)
Turner-Samuels, M.


Hayman, F. H.
Mort, D. L.
Viant, S. P.


Herbison, Miss M.
Moss, R.
Warbey, W. N.


Hobson, C. R.
Moyle, A.
Weitzman, D.


Holman, P.
Mulley, F. W.
Wells, Percy (Faversham)


Holmes, Horace
Neal, Harold (Bolsover)
Wells, William (Walsall, N.)


Houghton, Douglas
Oram, A. E.
West, D. G.


Howell, Charles (Perry Barr)
Owen, w. J.
Wheeldon, W. E.


Howell, Denis (All Saints)
Padley, W. E.
White, Henry (Derbyshire, N.E.)


Hughes, Cledwyn (Anglesey)
Paling, Will T. (Dewtbury)
Wilkins, W. A.


Hughes, Emrys (S. Ayrshire)
Pannell, Charles (Leeds, W.)
Willey, Frederick


Hughes, Hector (Aberdeen, N.)
Pargiter, G. A.
Williams, David (Neath)


Hunter, A. E.
Parker, J.
Williams, Ronald (Wigan)


Hynd, J. B. (Attercliffe)
Parkin, B. T.
Williams, Rt. Hon. T. (Don Valley)


Irving, S. (Dartford)
Peart, T. F.
Willis, Eustace (Edinburgh, E.)


Isaacs, Rt. Hon. G. A.
Popplewell, E.
Wilson, Rt. Hon. Harold (Huyton)


Jay, Rt. Hon. D. P. T.
Price, J. T. (Westhoughton)
Winterbottom, Richard


Jeger, George (Goole)
Price, Philips (Gloucestershire, W.)
Woodburn, Rt. Hon. A.


Jeger, Mrs. Lena (Holbn &amp; St. Pncs, S.)
Probert, A. R.
Yates, V. (Ladywood)


Jenkins, Roy (Stechford)
Proctor, W. T.



Jones, David (The Hartlepools)
Pryde, D. J.
TELLERS FOR THE AYES:




Mr. Pearson and Mr. J. Johnson.




NOES


Agnew, Cmdr. P. G.
Burden, F. F. A.
Emmet, Hon. Mrs. Evelyn


Aitken, W. T.
Butcher, Sir Herbert
Farey-Jones, F. W.


Allan, R. A. (Paddington, S.)
Butler, Rt. Hn. R. A. (Saffron Walden)
Fell, A.


Alport, C. J. M.
Campbell, Sir David
Finlay, Graeme


Amory, Rt. Hn. Heatheoat (Tiverton)
Carr, Robert
Fisher, Nigel


Arbuthnot, John
Cary, Sir Robert
Fleetwood-Hesketh, R. F.


Armstrong, C. W.
Chichester-Clark, R.
Fletcher-Cooke, C.


Ashton, H.
Clarke, Brig. Terence (Portsmth, W.)
Fraser, Hon. Hugh (Stone)


Atkins, H. E.
Cole, Norman
Freeth, D. K.


Baldock, Lt.-Cmdr. J. M.
Conant, Maj. Sir Roger
Garner-Evans, E. H.


Baldwin, A. E.
Cordeaux, Lt.-Col. J. K.
George, J. C. (Polick)


Balniel, Lord
Corfield, Capt. F. V.
Glover, D.


Barlow, Sir John
Craddock, Beresford (Spelthorne)
Gomme-Duncan, Col. A.


Barter, John
Crookshank, Capt. Rt. Hn. H. F. C.
Gower, H. R.


Baxter, Sir Beverley
Crosthwaite-Eyre, Col. O. E.
Graham, Sir Fergus


Bell, Ronald (Bucks, 8.)
Crouch, R. F.
Grant, W. (Woodside)


Bevins, J. R. (Toxteth)
Crowder, Sir John (Finchley)
Grant-Ferris, Wg Cdr. R. (Nantwich)


Bidgood, J. C.
Crowder, Petre (Ruislip—Northwood)
Green, A.


Biggs-Davison, J. A.
Cunningham, Knox
Gresham Cooke, R.


Birch, Rt. Hon. Nigel
Dance, J. C. G.
Grimond, J.


Bishop, F. P.
Davidson, Viscountess
Grimston, Hon. John (St. Albans)


Body, R. F.
Deedes, W. F.
Grimston, Sir Robert (Westbury)


Boyle, Sir Edward
Dodds-Parker, A. D.
Grosvenor, Lt.-Col. R. G.


Braine, B. R.
Donaldson, Cmdr. C. E. McA.
Gurden, Harold


Bromley-Davenport, Lt.-Col. W. H.
Doughty, C. J. A.
Hall, John (Wycombe)


Brooke, Rt. Hon. Henry
Duncan, Capt. J. A. L.
Hare, Hon. J. H.


Brooman-White, R. C.
Duthie, W. S.
Harris, Frederic (Croydon, N.W.)


Buohan-Hepburn, Rt. Hon. P, G. T.
Eden, Rt. Hn. Sir A. (Warwik &amp; L'm'tn)
Harrison, A. B. C. (Maldon)







Harrison, Col. J. H. (Eye)
McKibbin, A. J.
Remnant, Hon. P.


Harvey, Air Cdre. A. V. (Macclesfd)
Mackie, J. H. (Galloway)
Renton, D. L. M.


Harvey, Ian (Harrow, E.)
McLaughlin, Mrs. P.
Ridsdale, J. E.


Heald, Rt. Hon. Sir Lionel
Maclay, Rt. Hon. John
Rippon, A. G. F.


Heath, Edward
Maclean, Fitzroy (Lancaster)
Roberts, Peter (Heeley)


Henderson, John (Cathoart)
McLean, Neil (Inverness)
Robertson, Sir David


Hicks-Beach, Maj. W. W.
Macleod, Rt. Hn. Iain (Enfield, W.)
Robson-Brown, W.


Hill, Rt. Hon. Charles (Luton)
MacLeod, John (Ross &amp; Cromarty)
Rodgers, John (Sevenoaks)


Hill, Mrs. E. (Wythenshawe)
Macmillan, Rt. Hn. Harold (Bromley)
Roper, Sir Harold


Hill, John S. Norfolk)

Ropner, Col. Sir Leonard


Hinchingbrooke, Viscount
Macmillan, Maurice (Halifax)
Ropner, Col. Sir Leonard


Hirst, Geoffrey
Macpherson, Niall (Dumfries)
Russell, R. S.


Holland-Martin, C. J.
Maddan, Martin
Schofield, Lt.-Col. W.


Holt, A. F.
Maitland, Cdr. J. F. W. (Horncastle)
Scott-Miller, Cmdr. R.


Horobin, Sir Ian
Maltland, Hon. Patrick (Lanark)
Sharples, Maj. R. S.


Horsbrugh, Rt. Hon. Dame Florence
Manningham-Buller, Rt. Hn. Sir R.
Shepherd, William


Howard, John (Test)
Marples, A. E.
Smithers, Peter (Winchester)


Hudson, Sir Austin (Lewisham, N.)
Mathew, R.
Smyth, Brig. J. G. (Norwood)


Hudson, W. R. A. (Hull, N.)
Maude, Angus
Spearman, A. C. M.


Hughes Hallett, Vice-Admiral J.
Maydon, Lt,-Comdr. S. L. C.
Speir, R. M.


Hughes-Young, M. H. C.
Milligan, Rt. Hon. W. R.
Spens, Rt. Hn. Sir P. (Kens'gt'n, S.)


Hulbert, Sir Norman
Moore, Sir Thomas
Stanley, Capt. Hon. Richard


Hutchison, Sir Ian Clark (E'b'gh, W.)
Morrison, John (Salisbury)
Stevens, Geoffrey


Hutchison, James (Scotstoun)
Nabarro, G. D. N.
Stewart, Henderson (Fife, E.)


Hyde, Montgomery
Nairn, D. L. S.
Storey, S.


Hylton-Foster, Sir H. B. H,
Neave, Airey
Studholme, H. G.


Irvine, Bryant Godman (Rye)
Nicholls, Harmar
Summers, G. S. (Aylesbury)


Jenkins, Robert (Dulwich)
Nicholson, Godfrey (Farnham)
Sumner, W. D. M. (Orpington)


Jennings, J. C. (Burton)
Nicolson, N. (B'n'm'th, E. &amp; Chr'ch)
Taylor, William (Bradford, N.)


Johnson, Eric (Blackley)
Nugent, G. R. H.
Thomas, Rt. Hn. J. P. L. (Hereford)


Jones, A. (Hall Green)
Oakshott, H. D.
Thomas, Leslie (Canterbury)


Kaberry, D.
O'Neill, Hn. Phelim (Co. Antrim, N.)
Thompson, Kenneth (Walton)


Keegan, D.
Orr, Capt. L. P. S.
Tiley, A. (Bradford, W.)


Kerby, Capt. H. B.
Orr-Ewing, Charles Ian (Hendon, N.)
Touche, Sir Gordon


Kerr, H, W.
Page, R. G.
Tweedsmuir, Lady


Kirk, P. M.
Panned, N. A. (Kirkdale)
Vaughan-Morgan, P. K.


Lagden, G. w.
Partridge, E.
Vickers, Miss J. H.


Lambton, Viscount
Peake, Rt. Hon. C.
Vosper, D. F.


Lancaster, Col. C. G.
Peyton, J. W. W.
Wade, D. W.


Langford-Holt, J. A.
Pickthorn, K. W. M.
Wakefield, Edward (Derbyshire, W.)


Leather, E. H. C.
Pilkington, Capt. R. A.
Wall, Major Patrick


Leavey, J. A.
Pitman, I. J.
Ward, Dame Irene (Tynemouth)


Leburn, W. G.
Pitt, Miss E. M.
Waterhouse, Capt. Rt. Hon. C.


Legh, Hon. Peter (Petersfield)
Pott, H. P.
Watkinson, H. A.


Lennox-Boyd, Rt. Hon. A. T.
Powell, J. Enoch
Whitelaw, W.S.I. (Penrith &amp; Border)


Lindsay, Hon. James (Devon, N.)
Price, Henry (Lewisham, W.)
Williams, Paul (Sunderland, S.)


Lindsay, Martin (Solihull)
Prior-Palmer, Brig. O. L.
Williams, R. Dudley (Exeter)


Linstead, Sir H. N.
Profumo, J. D.
Wills, G. (Bridgwater)


Lloyd, Rt. Hon. Selwyn (Wirral)
Raikes, Sir Victor
Wilson, Geoffrey (Truro)


Low, Rt. Hon. A. R. W.
Ramsden, J. E.
Wood, Hon. R.


Luoas, Sir Jooelyn (Portsmouth, S.)
Rawlinson, P. A. G.
Woollam, John Victor


Lucas-Tooth, Sir Hugh
Redmayne, M.



Macdonald, Sir Peter
Rees-Davies, W. R.
TELLERS FOR THE NOES:




Mr. Godber and Mr. Barber.


Question put and agreed to.

Amendments made: In page 4, line 34, leave out "ordinary."

In line 35, leave out from "class" to end of line and insert:
to which this section applies.

In line 41, after second "shares" insert "or those shares."

In page 5, line 12, leave out "together."

In line 23, leave out "ordinary."

In line 23, leave out from "class" to "being" in line 24 and insert:
to which this section applies.

In line 29, after "shares" insert "or those shares."

In line 37, leave out "together."

In page 7, line 8, leave out from beginning to "fully-paid" and insert:
'shares of a class to which this section applies ' means shares of any class forming

part of a company's share capital other than a class of.

In line 9, leave out "share" and insert "shares."

In line 11, leave out "share" and insert "shares."—[Mr. H. Brooke.]

Mr. Harold Wilson: I beg to move, in page 7, line 11, to leave out from "which" to "does" in line 12.

The Deputy-Chairman: It may be for the convenience of the Committee if we take, with this Amendment, that in page 19, line 10, the two in line 16, those in lines 22 and 30, and those in page 20, lines 11 and 14.

Mr. H. Wilson: I am sure that it is for the convenience of the Committee, at any rate that of my hon. Friends, and I take it that of the Treasury Bench also,


that all these Amendments should be considered together. I do not intend to detain the Committee for more than a moment or two, because our real purpose is to get some explanation from the Government, as we think that there is here a rather unusual form of phrase.
The words which we propose to leave out refer to the
Commissioners having jurisdiction in the matter.
From the drafting it is not clear who those Commissioners are. A number of people who have studied the Bill have thought that it meant Special Commissioners while others have told me that they thought that it meant the Commissioners of Inland Revenue, which I gather is one of the fancy titles for the Board of Inland Revenue. Because of those doubts we have put down the Amendment so that the Government spokesman can tell the Committee exactly which Commissioners are intended, and can tell us also why it would not be better to withdraw this form of words and to make specific reference to the Commissioners intended.

The Solicitor-General (Sir Harry Hylton-Foster): Perhaps it would be convenient were I to explain at once how this matter strikes us. In their legal effect, the words are very nearly surplusage. The Commissioners are not the Commissioners of Inland Revenue—and I do not fancy giving the Committee a lecture on commissioners in general, who are odd creatures with dual functions at times. These are Commissioners of Taxes, and where they would have jurisdiction they would be acting as the ordinary appellant tribunal—the independent statutory tribunal. They might be either General Commissioners or Special Commissioners. The easiest way to illustrate the point is by considering how the problem would arise under subsection (8, c). It would arise, of course, when the computation of the profits, or the gains or losses, of the trade in question was going on.
The original assessment might be made nominally by the Additional Commissioners or by the Special Commissioners. If the computation were not called in question, the whole matter would drop and we should not have to worry further. If it were challenged, then the appeal body would be either the General Commissioners or the Special Commissioners, as the case might be, and that

body of Commissioners would be the Commissioners having jurisdiction in the matter.
It was thought that when we were dealing with a matter clearly of degree or opinion it was best to put into the Statute, for purposes of clarity, whose opinion it is which would absolutely govern the matter—as indeed it would. It in no way affects the rights of appeal, as I understand the enactment.
I ought also to tell the Committee that there is a very respectable precedent, which has now become Section 299 of the Act of 1952, where exactly the same phrase is used twice in the Section. That Section relates to capital allowances to lessees of plant and material. So far as I know, it has never given any trouble and it has proved a satisfactory form of enactment. I hope that, with that explanation, the Committee will think it right to leave this form of words in the Bill.

Mr. E. Fletcher: I am sorry to say that I am not wholly satisfied with that explanation, and I was particularly alarmed by what the Solicitor-General said about the right of appeal. If I understand him, he said that the Commissioners who would have jurisdiction in the matter might in certain circumstances be one set of Commissioners and in other circumstances might be a different set of Commissioners. He said that if there were an appeal the Commissioners would be the Special or General Commissioners.
He is well aware that in the ordinary law of the land, if a Statute lays down that such and such shall be the case, in the opinion of a particular court, it makes a great deal of difference when one appeals; because in the ordinary way, if there is an appeal, then in the absence of some statutory provision giving a discretion to the court of first instance, the appellate tribunal can look at the position and formulate its own opinion on the law or on the facts. That is not the case where a Statute places a discretion on the court of first instance, because in that case the appellate tribunal may well say, and often has said, "If we had been free we should have come to a different opinion but this is a case where the learned judge has a discretion which he has exercised."
It seems to me that before we part from these words we must be clear about where we are. Are the appellate Commissioners,


in the event of an appeal, to be bound by the opinion of the Commissioners who first had jurisdiction in the matter or are they free to look at the matter afresh and come to their own decision? I notice that in that part of his speech the Solicitor-General slurred over this problem, which worries me a great deal.
He also said that he thought the words were very nearly surplusage. I do not know what that means. Either they are surplusage or they are necessary. It seems to me quite inexplicable that they can be "nearly surplusage." Either these words mean something and are intended to have some effect, in which case we should like to know what it is, or they are unnecessary and have no effect. We cannot be fobbed off by a statement by the Law Officer that such and such words "are nearly surplusage."
I am sorry to detain the Committee on what appeared to be a relatively small point which I had hoped that the Law Officer would deal with to our satisfaction, but I am bound to say that his observations have left me more perplexed than I was originally. It is necessary that the matter should be cleared up before we proceed further.

9.15 p.m.

The Solicitor-General: This is entirely my fault. I tried to go too quickly so as not to detain the Committee. I hope I can satisfy the hon. Member that his doubts are not well-founded, although, of course, if they were well-founded, I should agree with him in regarding it as a matter of importance.
The Commissioners, when assessing, do not exercise jurisdiction. The Commissioners who exercise jurisdiction for this purpose are appeal Commissioners either in the form of General Commissioners or Special Commissioners, as the case may be. They are the independent appellate tribunal in the sense of the Acts—that kind of appeal tribunal. Of course, it is true that if a Statute in general confers a discretion on the lower tribunal it thereby narrows the right of appeal from that tribunal to the superior tribunal because the superior tribunal will say, "Here is a discretion conferred and we will not interfere with the exercise of it unless it has been unreasonably exercised."
That does not arise here because under the relevant tax statutes no right of appeal exists from the appeal Commissioners save on a point of law. It is very difficult

to see how under this Bill any point of law could arise within the context of those words because all the matters governed by the opinion of the Commissioners having jurisdiction here are questions of fact. But, suppose there were a point of law on which an appeal could arise, then, of course, the discretion point would not occur in that appeal because no one is given discretion as to what the law is. That is why I hope I am quite right in advising the Committee that the right of appeal is, by these words in this Bill, wholly unaffected—that is, the right of appeal from the appeal Commissioners to the court on a point of law.
As to describing the words as nearly surplusage, I am sorry if that offends the accurate and graceful mind of the hon. Member for Islington, East (Mr. E. Fletcher), but it happens to be a convenient form of words. They are very nearly surplusage—things very nearly without legal effect—but they help a person reading the Bill who is not a lawyer with the wisdom of the hon. Member to understand on whose judgment the matter will be determined.

Amendment negatived.

Motion made, and Question proposed, That the Clause, as amended, stand part of the Bill.

Mr. H. Wilson: The Amendments we have been debating for the last few minutes were designed, in the first case, to strengthen and, in the second case, to elucidate the provisions of the extremely tortuous measure that the Government have decided upon as a means of countering dividend stripping and on this Question it is appropriate to consider dividend stripping, or "the Indian rope trick," against a rather broader setting.
The first thing one has to ask—we must press the Government on this—is how expensive is this practice of dividend stripping and what is the cost? The Financial Secretary to the Treasury misled the House—no doubt accidentally—in our debate on Second Reading when he said that there was a loss to the Revenue of slightly more than six figures.

Mr. Brooke: I never used the word "slightly."

Mr. Wilson: At any rate, the Economic Secretary to the Treasury said "approaching six figures," which makes it even smaller, If the Financial Secretary says he did not use the word


"slightly" we accept that. Nevertheless, when he said "more than six figures" most hon. Members thought that it was in excess of £100,000, but less than seven figures. Now it becomes clear that he meant seven figures and possibly eight; we are not sure which. I am sure the Committee would acquit the right hon. Gentleman of any intention to mislead, but it turns out that he meant a seven-figure amount.
At Question Time a week last Thursday I put some Questions to the Chancellor of the Exchequer and we had some further estimates from the Financial Secretary. Admittedly, that afternoon was not an afternoon on which some hon. and right hon. Gentlemen were at their clearest, because we had been debating the Finance Bill until eight o'clock in the morning, and, as hon. Gentlemen will recall, the position of the Finance Bill at 2.30 that afternoon was in a state of some considerable doubt. Therefore, it would be quite understandable if the Financial Secretary was not at his clearest and most lucid when he gave those answers.
However, the right hon. Gentleman did say quite clearly that he estimated a loss of £4 million as the loss in the financial year 1954–55, and, in reply to the second part of the same question, he said that he had no information for the current financial year. But we must set against that the fact that the Chancellor, during the Budget debate—I think on the Friday, speaking from memory—confirmed that the loss to the Revenue from dividend stripping was increasing and was causing him concern.
I am not suggesting that it is possible to measure how rapidly it is increasing, but it is known that at this stage in the current year we are running a loss to the Revenue, on the basis calculated by the Financial Secretary, of some £4 million per annum. How much more it is perhaps not yet possible to measure, but as we have pointed out to the right hon. Gentleman from this side of the Committee, these figures seriously understate the total loss.
On the same Thursday afternoon, in reply to another Question which I put to him, the Financial Secretary said:
The estimates in question relate only to tax on the technical losses sustained by the dealing concerns that bought the shares for

dividend stripping."—[OFFICIAL REPORT, 17th November, 1955; Vol. 546, c. 763.]
Nothing could be clearer than that, but is is quite clear that that Answer means that the figures included in his estimate are only a part—and I suggest only the smaller part—of the total loss to the Revenue from this particular racket.
The right hon. Gentleman, on that occasion, would not venture a complete estimate, though I suggested in a supplementary question that the loss to the Revenue was possibly £10 million, £12 million or even £15 million in a full year. I think that to justify that very rough estimate which I gave in the form of a Question, we might take the case given by the right hon. Gentleman in his speech on Second Reading.
The Committee will recall that on Second Reading the right hon. Gentleman very clearly explained the whole practice of dividend stripping by taking a simple example, and I think that most hon. Members will probably agree that the theory and practice of dividend stripping has never been more clearly and lucidly explained to the House than it was on that afternoon. Let us have a look at the case he took. The right hon. Gentleman gave us the case of a company which buys up for £100,000 the shares of another company with large undistributed cash reserves. Then, he said, we assume that the company pays out £92,000 in dividends and sells the remaining shares for £8,000. This company, then being a company which deals in securities, treats as a trading loss the £92,000 lost through buying the shares for £100,000 and selling them for £8,000, and proceeds to claim Income Tax relief.
As the right hon. Gentleman quite fairly said, it does not need to bring into account the dividends received in this computation, and it claims 8s. 6d. in the £ on £92,000. On the Financial Secretary's calculations, which my own rough check confirms, that means that they got back £39,100 at the expense of the Revenue. On the right hon. Gentleman's calculations, that is the whole story, but, of course, I think it will be quite obvious to all hon. Members that it is not the whole story. I am not sure how many hon. Gentlemen opposite I am carrying with me at this particular stage of the calculations, but I should have thought that most of them would agree that it is not the whole story.
Let us look at the motive, because the Financial Secretary's approach to the whole problem was weakened by his failure to look at the motive. In many cases, indeed, I should say the majority of cases, the initiative is taken by the vendor company—a company which has accumulated liquid cash reserves and has not distributed those cash reserves, perhaps because it was responsive to the appeals of successive Chancellors of the Exchequer not to distribute profits, or, more likely, because it was afraid of being caught for Surtax. In the case taken by the right hon. Gentleman, the vendor has succeeded in distributing his profits without paying Surtax and he has done this by selling the shares, which, since they convey to him a capital gain, are not subject in that way to Surtax.
Let us suppose that the vendor had done the other thing and had declared a dividend for the purpose of clearing the decks. Such a dividend would, I think it will be agreed, have been a gross dividend of £160,000, giving a net dividend of £92,000. That is to say, £160,000 gross less tax at 8s. 6d. in the £ on £160,000 gives him a net dividend of £92,000. This would, of course, have borne Surtax. I quite agree with the right hon. Gentleman in his answer at Question Time that one cannot say how much Surtax would have been borne because one does not know at which rate of Surtax the individual profiting from the transaction would have been caught.
But let us consider a case in which there are three shareholders. In most cases where this practice is followed, it is usually a small number of shareholders and not a large company. Let us say that the income and tax position of these three gentlemen would make them liable for Surtax at the rate of 9s. 6d. in the £, which is a perfectly reasonable estimate in this case. At a rate of 9s. 6d. in the £ on the distribution of the net dividend of £92,000, the Revenue would then have got £79,000 in Surtax.
Looking at the operation from the vendor's end, therefore, the Revenue has lost £79,000. In other words, the whole operation has enabled the shareholders to get their hands on £92,000 without paying the £79,000 in Surtax which they would otherwise probably have paid. At the same time, as the right hon. Gentleman said, it has enabled the purchasers to claim £39,100 in repayment of tax. So that the real loss to the Revenue against

the Surtax that would have been payable had there been distribution in the ordinary way is the £79,000 plus £39,100, which is £118,100, or three times as much as the right hon. Gentleman said.
If that is a representative case, and I see no reason to suppose that it is unrepresentative, the figure given by the right hon. Gentleman—deliberately, but quite honestly—understates the position. That is why I, for my part, put his figure of £4 million a year up to £12 or £15 million.
I know that there are all kinds of refinements that might be introduced into these figures. There is the special position of charities, to which my hon. Friend the Member for Islington, East (Mr. Fletcher) referred. There are also the complications of possibly catching even the trading company for certain Profits Tax. But when one has made all allowance for such possible refinements, it is fair to argue that an estimate which only bases itself on the tax reclaimed is a relatively small proportion of the total loss to the revenue. That is why I put the right hon. Gentleman's figure of £4 million a year up to £12 or even £15 million a year.
As my hon. Friend the Member for Sowerby (Mr. Houghton) pointed out, it is no secret that this business has been going on for a considerable time. As my hon. Friend the Member for Ashton-under-Lyne (Mr. Rhodes) interjected on Second Reading, very many people in the City expected that the April Finance Bill would have dealt with this problem. Most of the journals that deal with tax problems were certainly foreshadowing legislation at that time. Taxation was foreshadowing it and some of the accountancy journals were foreshadowing very confidently that measures to deal with this practice would be introduced in the April Budget, which was introduced at the usual time of the year.
9.30 p.m.
I want to join with my hon. Friend the Member for Sowerby in asking why this provision was not introduced in the April Budget when, quite clearly, most people knew the practice was going on and most expected measures to be taken. In consequence of the failure of the Government to introduce it in April it is quite clear that many other people have intensified their activities since, to make sure of getting this advantage before the next Budget. Not everyone, of course, ex-


pected an autumn Budget, but I am quite sure that some individuals with liquid cash reserves, finding that they had been spared last April, got to work as quickly as they could to make sure they would be able to strip their dividends before the Budget next April. That is why I suggest that this year, 1955 to 1956, the figure is considerably higher, on the right hon. Gentleman's method of calculation, than the estimate of £4 million.
This is what we must ask. Why was this not done in April? We all know the answer. My hon. Friend the Member for Sowerby has told us the answer. This measure was omitted to facilitate the speedy passage of the April Finance Bill so that the Government could get to the country for their quick General Election. We must ask whoever is to reply to the debate—is it to be the learned SolicitorGeneral?—quite clearly to tell the Committee tonight why this measure was not introduced in the April Finance Bill, when every one expected it. I hope he will tell us. If he cannot, I hope that one of his colleagues from the Treasury will tell us. If neither knows the answer I hope they will ask the Chancellor to come in, and that he will tell us, because this is a very serious matter.
If my estimate is right—and it may be an under-estimate—the Chancellor, who is supposed to be dedicated to the idea of economy, will have lost in the six months delay or more about £6 million or £7 million for the Revenue, and lost it for political reasons, lost it because it seemed to him more advantageous to the country to have a quick Budget and a quick Election than to take the measures necessary to protect Her Majesty's Revenue from these racketeers.
If it is true because of that that £7 million has been lost to the Revenue I am sure the Committee will wish in its own mind to set off that £7 million or more of loss, incurred for this very unworthy motive, against the Purchase Tax figures which we have been debating during the past two or three weeks. I see a small frown furrows the brow of the Economic Secretary, but if I put this point to him I am sure that he will take it as quickly as he usually takes these matters. Over these past few days we have been debating the great hardship and burdens placed on the housewives by the series of petty taxes on household necessities. Although it has been very

difficult to get any information out of the Chancellor it would appear that these add up to about—did the hon. Gentleman the Member for Dover (Mr. Arbuthnot) wish to say what it was?

Mr. Arbuthnot: Fourpence a week.

Mr. Wilson: I think the hon. Gentleman must have got it wrong. The Chancellor estimated that it would be about £7 million on household necessities. If one ignores the textiles, clothing, furniture and pottery the figure would be £7 million in total per annum. That means that the amount of money the Chancellor has allowed to escape because of his Election Budget he now has to take back from the housewives almost to the same extent. He need not have imposed this intolerable burden on the British housewives if he had taken this step sooner. If there is anything wrong with my calculation, I hope the hon. Gentleman will correct me.

Mr. Arbuthnot: It is still fourpence a week.

Mr. Wilson: The hon. Gentleman, no doubt, has been doing some mental arithmetic. I took the Chancellor's own figures. If the Chancellor has been allowing these racketeers to fleece each average family in the country of 4d. a week ever since the General Election I can only hope the hon. Gentleman is proud of that. I hope I shall get an answer from the Solicitor-General about the timing of this measure, and why it was not taken in the April Budget. The figures I have given show how the Government have under-estimated the revenue they have lost.
They are looking at the transactions entirely on the side of the purchaser and have ignored the vendor. I suggested on Second Reading that this was a one-sided way of looking at it. It not only affects the Estimates, but is a case of the Government approaching the practical problem of stopping it from the wrong end. The Government intend to regard—I think that this stands out from the Financial Secretary's speech and, to some extent, from the Economic Secretary's speech on Second Reading—the purchaser of the shares, the investment dealing company, the charity, or whoever it may be, as the initiator of the transaction.
I would suggest to them that it is more appropriate to regard the vendor, the Surtax dodger, as the initiator in this case, although, in fact, there may be joint


initiative. Wherever there are two prices for the same thing because of the way in which the tax system works it obviously pays both to enter into deals of this kind, just as it pays both parties in the parallel case of bond washing to enter into deals of this kind. It pays both the seller and the buyer.
I think that the Treasury Ministers will confirm that in some cases the vendors have set up a special company, a purely notional, nominal company, to act as the purchaser of these shares. Certainly in this case the initiative was taken by the vendor. I should have thought, as I have said, that the principal motive was the avoidance of Surtax, and that in most cases the initiator was the vendor rather than the purchaser.

Mr. Pitman: Mr. Pitman indicated dissent.

Mr. Wilson: I see that the hon. Member for Bath (Mr. Pitman) shakes his head. I agree that in every case, the motive is not avoidance of Surtax. In some cases it is simply an attractive method of being able to get a tax rebate on the line suggested by the right hon. Gentleman, but in the majority of cases I suggest that the motive comes from Surtax dodging, namely, the desire to distribute liquid reserves without being caught for Surtax.
It is because the Government are looking at this from the wrong end that we have the extremely tortuous procedure embodied in the Bill. I think that, by and large, this tortuous procedure is likely to be effective. We have given our reasons tonight why we thought that there was one loophole which ought to be stopped. It is because we think that, on the whole, this tortuous and cumbersome procedure is likely to be effective that we do not propose to vote against the Clause, although I am very doubtful whether it was necessary to be so cumbersome in providing this method of stopping dividend stripping. Six whole pages have been devoted to this business, and I think that about three pages of the Schedule are in smaller type, which suggests that the total number of words used is very considerable.
I think that the reason why this had to be so complicated is that the Government have started from the end of the purchaser of the shares and not from the end of the vendor of the shares. One might take a parallel—I agree that it is not entirely perfect—of the burglar and the man who

goes in for the receipt of stolen property. The latter, I gather, is usually known as a "fence." Supposing that the Government were to find that burglary was going on on a considerable scale, they would be likely, if they followed the same procedure as they have followed here, to try to stop burglary by making a provision that dealing in stolen property was a crime, or, at any rate, by making it unprofitable, with elaborate arrangements to protect the genuine antique dealer or the dealer in silverware or gold in order to enable his legitimate trade to continue. I think that that is a fair parallel of what the Government are doing. They are trying to make it difficult for the "fence." I suggest to the right hon. Gentleman that it would have been a great deal easier if he had tackled the problem from the other end and made burglary illegal. In this particular case he should have provided that the Surtax payable would have been payable on the transaction. I think that would have been just as effective and just as complete in its enforcement, and a great deal simpler.
I still cannot get over my suspicion that the Treasury rejected this proposition to deal with it simply from the end of the vendor, because any measures taken to achieve that end would smack of a tax upon capital gains. There is a desire on the part of the Treasury—I do not know whether it is Ministerial, or whether it comes from the officials who advise the Minister—to avoid doing anything which looks like the thin edge of the wedge of a tax on capital gains.
As I said on Second Reading, and as I am sure the whole Committee will agree. the measure proposed in the Clause, and in the Schedule that goes with it, will not deal with all the problems which arise from the fact that the tax system treats one class of company one way in relation to the achievement of capital gain and another class of company in a different way. That is why these measures are not successful in dealing with the manifold forms of bond washing that are still legal. I should be out of order if I went into detail about the various forms of bond washing that are still legal, but there is no doubt that bond washing is still going on to a very considerable extent.
If the Chancellor had sought to put an end to dividend stripping by the sort of approach which I have been suggesting for the past few months, it would, or


could, have had the effect of making illegal at the same time a considerable proportion of the still legal bond washing that is going on. On Second Reading, I said:
… this …
meaning dividend stripping—
and other forms of legal evasion, such as bond washing, are due to the fact that we have a dual system of taxation under which the individual pays Surtax on income, but capital gain remains tax free … while, to a finance dealing company, the same capital gain becomes an income loss and is entitled to tax rebate."—[OFFICIAL REPORT, 8th November, 1955; Vol. 545, c. 1789.]
It would be out of order to go wider than dividend stripping in debating this Clause, and since the Financial Resolution has prevented hon. Members from putting down new Clauses it is impossible for us to suggest means by which other and parallel rackets could have been dealt with. I hope that the right hon. Gentleman the Financial Secretary will convey to the Chancellor my statement that I wish to press the Chancellor to apply his mind to this broader problem, to all the types of what for sake of a generic title I will call "scrip-teasing," which includes dividend stripping, bond washing, and all the rest. There are many more which have no name. Having given his mind to the problem, I ask the Chancellor to prepare really effective methods of dealing with these rackets in the next Finance Bill.
9.45 p.m.
I hope that the Chancellor will realise the truth of the words in the minority Report of the Royal Commission, published a few months ago, which said that so long as capital gains remained exempt from taxation it was impossible to deal with the problem of the conversion of income into capital gains in all its possible forms by specific pieces of legislation. The majority Report did not deal with the problem of dividend stripping. The minority Report devoted a short section to the problem. As we are asked tonight to approve this Clause, it is interesting to note that the only members of the Royal Commission who gave their minds to the problem of dividend stripping said that they thought it would be impossible to deal with this problem by specific pieces of legislation. and that the only way of dealing with it was by an attack on the problem of capital gains.
Therefore, while we will not oppose this Clause, it is a matter for consideration that it could have been done much more effectively and much more simply. I hope that the next time we debate a Finance Bill, one which, I hope, will leave room for new Clauses, we shall find that the Chancellor has listened to the advice given to him from this side of the Committee on this Bill, and that he will introduce more sweeping legislation to deal with all the parallel problems that present themselves to the Treasury.

Mr. Pitman: I support the Chancellor on this Clause more enthusiastically than I gather the right hon. Gentleman the Member for Huyton (Mr. H. Wilson) has just done. In that connection I want to deal particularly with my Amendments which were not on the Order Paper in time to be called: In page 6, line 15, after "if," to insert:
neither the person acquiring the shares nor any associated persons to whom the shares are subsequently sold makes any loss in respect of such shares which falls to be taken into account, or if every such person who makes such a loss elects not to take it into account, in computing the profits arising from, or loss sustained in, the trade, or if.
In line 21, at the end to insert:
For the purposes of this subsection, shares shall be deemed to be sold to an associated person where the buyer is a body of persons over whom the seller has control or the seller is a body of persons over whom the buyer has control or both the seller and the buyer are bodies of persons and some other person has control over them.
I want to deal with these Amendments in terms of the finance company. The right hon. Gentleman mentioned a company which was bought up for £100,000 and resold, after the payment of £92,000 in dividends, for £8,000. He also used the term "scrip-teasing." In my estimate this might be called "strip-teasing" but with the important difference that the residue becomes less and not more interesting as the stripping takes place and as it approaches the less interesting £8,000 mark.

Mr. H. Wilson: I am not sure whether the hon. Gentleman said "strip-teasing" first and "scrip-teasing" second or "scrip-teasing" first and "strip-teasing" second. Perhaps I should make it clear that when I used that generic phrase—and I would be glad if hon. Gentlemen opposite could think of a better—I said "scrip."

Mr. Pitman: I am happy to clear up the doubt because, with my name, I have the greatest sympathy for the reporters over mis-hearings. I used the term "scrip-teasing" first and made the contrast with "strip-teasing."
In such a case it is in the capital loss being treated as a charge against income for the tax computation that the real vice of the stripping takes place. Therefore, it is only in the case of finance companies that this can possibly arise because it is only in finance companies that there can be any gain in taxation benefit from what would otherwise be a capital loss and, therefore, a non-tax recovery loss.
Finance companies may be divided into two classes: those which are genuine finance houses and those which are there for tax avoidance. I will call them ad hoc finance companies. The genuine finance house carries out some important functions. For instance, it buys the shares of a deceased holder of, say, 10 per cent. of a private company and helps the estate in finding the death duties. Again it can carry out the function performed by the Industrial and Commercial Finance Corporation, of helping to finance a young and hopeful company, the small private business. Usually the finance house, like the I.C.F.C., demands that it shall hold at least a 10 per cent. part of the equity. Other occasions are when it helps one or other of two large shareholders to buy out the other and so brings to an end what might be called internecine mismanagement. Fourthly, by obtaining a share in management, it may exert some influence towards greater efficiency in the conduct of an organisation. Finally, it generally produces a market for shares which are otherwise not marketable.
It is very important that in hitting at the ad hoc company we do not also cause fears, doubts and uncertainties about higher taxation on the part of the genuine finance house which is carrying out these beneficial functions. One of the difficulties about the autumn Budget was that it was necessarily introduced in a hurry. It was necessarily secret before its publication, and there has therefore been no opportunity for people interested in running genuine finance houses to collect their thoughts about it; to get a collective expression of opinion, and take action to try to ensure that their interests would be properly considered and that this Committee would take them into account.
It was not until 17th November that they could get together and make any representations at all, and it was only last night that I received from them the Amendment which I put down upon the Order Paper, which was accordingly starred this morning and is unfortunately too late to be called. That Amendment goes to the root of the trouble, which lies in the sale for £8,000 of those shares which were bought for £100,000, after the stripping which had taken place. It is in the recovery of the tax upon the £92,000 that the vice is introduced.
If, as happens in so many of these finance house operations, there is no diminution in capital value, but the shares are sold—after the very minor dividend stripping that takes place—at a higher price than that for which they were bought, the Inland Revenue actually gains, because the capital profit attracts Income Tax. It is therefore quite clear that if the vice lies in the resale of shares at a lower price, the correct way of remedying the matter is to introduce some provision to cover those cases and, as the Amendment sought to do, to exempt from the mischief of the Bill any resale which was not made at such a loss.
I hope that the Chancellor will reconsider this question on Report, and that, in the meanwhile, he will meet representatives of finance houses and discuss with them the fundamental point whether, in giving certainty of relief to them, an opening might be caused of which the hon. Member for Sowerby (Mr. Houghton) would like to be a stopper-up, and which ought not to be opened up. The Chancellor and the finance house representatives should see whether there is such a risk. I have asked several people in the business if they could think of any way in which the Amendment would open up an undesirable practice and they have been unable to think up such a possible loophole.
This evening the Economic Secretary gave an unconditional guarantee that, having given warning of the Government's desire to stop all abuses, he will make any future legislation retrospective, in order to take care of any such abuses which may arise in the intervening period. Since he has said that, will he not apply that principle to the Amendment to which I have referred? If it is not capable of abuse—and I do not think it is—it will do what the Committee


wishes, namely, give to elements of the community who are doing a very good job a feeling of certainty about their ability to continue their beneficial functions. If it is capable of abuse, his threat and subsequent legislation will be effective.

Mr. Houghton: The hon. Member for Bath (Mr. Pitman), in his usual fair-minded way, has been describing to the Committee the difficulty of legislating against these ingenious devices for tax avoidance without hitting the just as well as the wicked. That problem always concerns the Committee when asked to legislate on these complicated matters. It is one of the main reasons why the Chancellor is reluctant to come forward with legislative proposals to stop abuses unless they become so serious and widespread that he must attack them, even though it means another substantial addition to our already complicated legislation.
We are discussing the seamy side of the full-blooded capitalism which the hon. Member for Dorset, South (Viscount Hinchingbrooke) says is the only alternative to Communism. It reminds me of the stern old judge who once said to a prisoner, "If ever there was a case worse than this case that case is this case." There is no doubt that this is one of the most serious cases of tax avoidance that we have had for some time. I want to go back to what the Financial Secretary said in his Second Reading speech about it and to clear up some of the doubts about the six figures.
The right hon. Gentleman said:
Clause 4 is designed to exterminate the small but ingenious tribe of dividend strippers.
That was not a very friendly thing to say. It is obvious that the right hon. Gentleman felt it very keenly. He was emotionally roused about this ingenious tribe of dividend strippers. He went on to describe to the House how this ingenious thing was done. After giving the description he said:
This trick"—
the right hon. Gentleman's temper was still up—
is at present perfectly lawful.
He meant that the law does not stop it. It is not lawful. There is a difference between the two. He went on:
It has just begun to be exploited on a really big scale. If we waited until the next

Finance Bill the loss of revenue in the interval would exceed six figures.
This is where the six figures come from. The right hon. Gentleman concluded with a gesture which impressed the whole House:
I am not prepared to stand by and see the Revenue milked like that."—[OFFICIAL REPORT, 8th November, 1955; Vol. 545, c. 1668–1669.]
But the Revenue had been milked like that in the previous financial year to the tune, not of six figures but of seven. Several millions has already been stripped through this trick, which has become known jocularly in the City as "the Indian rope trick".
I do not think that the right hon. Gentleman was being as fair as he usually is to the House when he said that if something was not done before the next Finance Bill the Revenue would lose more than six figures. He ought to have said, "We have already lost £4 million", when the urgency behind these proposals would have become much more apparent. My hon. Friend the Member for Ashton-under-Lyne (Mr. H. Rhodes) got up, somewhat impertinently and unkindly, and said:
This brave talk is all very well, but the Comptroller and Auditor General pointed this out before the April Budget, and nothing was done."—[OFFICIAL REPORT, 8th November, 1955: Vol. 545. c. 1669.]

10.0 p.m.

Mr. H. Wilson: I have discussed that with my hon. Friend the Member for Ashton-under-Lyne (Mr. Rhodes). He informs me that it was a mishearing and that he was referring not to the Comptroller and Auditor General, but to the magazine called The Accountant.

Mr. Houghton: I expect that the information given by The Accountant is very reliable, and I do not think that my hon. Friend's intervention lost anything by being misreported.
It is time that we discovered the truth about this and other forms of tax avoidance. I recently received a letter from a person whom I have never met, and whose name I shall not mention, which reads:
So the Indian rope trick has not been made retrospective.
There seems to be a note of depreciation in that:


Now let me tell you another little story. I sell a company for the value of cash reserves to a holding company. Then I leave the valuation of the assets as a director's loan, for which I take so much of the principal each year and allow the interest to accrue, and it becomes part of the debt. The rope this time ties your friends in the Inland Revenue".
That is something else with which I do not think the Clause deals. It deals with dividend stripping, but not with asset stripping, which it presumably is. One case after another comes to notice and there is literally no end to it.
I know what is in the mind of the noble Lord the Member for Dorset, South, so I will say that even if taxation were lower this kind of thing would be almost as prevalent as it is now. Of that I am sure. Reports of commissions of inquiry and investigation over many years have drawn attention to tax evasion as a very serious matter.
I think what is really at stake, if I may say so, is a difference of approach to this kind of thing between my hon. and right hon. Friends and hon. and right hon. Gentlemen opposite. I do not like to strike moral attitudes, much less do I like to attribute to hon. Members opposite any unworthy motives. That would be quite wrong. My point is that I believe that they accept this as part of the activities of business and big finance rather more readily than we do. They become, so to speak, contaminated by the company they keep. I hope that is not an unworthy imputation. They regard the phrase "He is a good business man" as indicating a praiseworthy member of society, but we wonder whether such a phrase is not just a little slick, a glossing over of some of the things which we would not regard as fully acceptable in the field of public administration, for example.
However, I will leave that point, because I think it does represent a substantial difference of approach. To be fair, however, we must add this. On this side we are so far removed from these activities that we have not come to accept them. We do not practise them. We are not in this at all. It is something which is not only foreign to our nature, but we are quite removed from any temptation. [Laughter.] Hon. Gentlemen opposite laugh. It is an indication of the levity with which this social evil is treated by them, and there is no doubt that it is a social and a moral evil.
I will moralise no more. [HON. MEMBERS: "Hear, hear."] It is quite evident that what I have been saying is not to the taste of hon. Members opposite. They feel a little uneasy about it. They are a little ashamed about it. If they are not, they jolly well ought to be.
I ask the Chancellor to tell us the whole story about the losses which are being incurred. Does he think that the proposal which gives all the dividend strippers a clean bill of health for the past, and deals only with the future, measures up to his brave talk on the Second Reading? Can he assure us that other devices of a similar kind are being carefully watched with a view to being brought within the comprehensive war against serious tax avoidance?

Sir Patrick Spens: I want to intervene for a very short time. There have been a number of challenges from the other side of the Committee and I would willingly take up a great deal of time in trying to answer them.
In reply to the hon. Member for Sowerby (Mr. Houghton), I still maintain, as many lawyers have maintained for generations, that there is no moral stigma in doing something which is permitted and not forbidden by the law. That has been handed down by the highest authority. It is well known that the law always lags behind the growth of moral feeling in the country, and it is when the moral feeling of the country requires that something shall be done that the law is changed. If right hon. and hon. Gentlemen will follow the history of company law in this country they will find that right from the moment it started that has been a true description of everything which has happened.
Here we have another example. Since I first entered the House in 1933 there have been innumerable instances in which the House has had to pass legislation in keeping with the moral standards which have grown up during the time which has elapsed since previous legislation was introduced. Here is another case. There is not the slightest doubt that this is a method of avoiding taxation which, in the opinion of all decent, honourable men, ought to be ended.
Let hon. Members put themselves in the position of the Government. We know perfectly well that when the first instance arises of an attempt to avoid


taxation the Financial Secretary and his advisers think, "What will this come to?" They have to consider the matter for quite a long time, and we all know that these abuses have to reach a certain stage before it is possible to introduce legislation. The older hon. Members will recall Sir John Simon's Finance Acts, and will remember the frightful difficulty at that time of dealing with quite a number of methods of tax avoidance.
The right hon. Member for Huyton (Mr. H. Wilson) cannot complain because some time has been taken in devising the legislative changes which are necessary to deal with this case of tax avoidance, for there are four pages on the subject, almost unintelligible even to a lawyer. I believe they are capable of dealing with this abuse. These methods of tax avoidance are always extremely difficult matters to deal with and an immense amount of time is required in the Treasury, with its legal and other advisers, before some provision can be produced to be put before the House.
I want to draw attention to a point in the machinery of the Clause. I was astounded, when I looked at subsection (8, b), to read:
'Person' includes any fund or trust …
That is something I have never seen in legislation before. The whole of the operative subsections of the Clause and all the operative subsections of the Schedule refer to persons. I know of no fund which is not owned by someone or managed by someone. I know of no trust which has not got trustees. I have not the slightest idea what my right hon. Friends had in their minds by saying that funds or trusts shall be accountable and shall not do this or that. I have not the slightest idea how they are going to make the provision operative in that way.
Of course, I do not expect an answer at present. This is something quite new in our taxation legislation, so far as I know. Between now and the Report stage, I ask that my right hon. Friend should consider whether it really is not quite ridiculous to say that a fund or a trust is a person, and whether the Government ought not to try to define the individuals who are to be accountable and who are to be liable if they misbehave in the way the Clause indicates.
On the much wider question, which I should like to debate, I would ask the right hon. Gentleman for Huyton (Mr. H. Wilson), who made a very interesting speech, whether it really matters what the motives are? Does it really matter what the losses are? Is not the real gain that Her Majesty's Government are active and are acting as promptly as is reasonably possible to expect?

Mr. John Howard: I will not detain the Committee for more than a few moments, but I wish to support my hon. Friend the Member for Bath (Mr. Pitman) in his allusions to the genuine finance house as distinct from what he described as the ad hoc finance house. I think that is comparable to the nominal company to which the right hon. Member for Huyton (Mr. H. Wilson) referred, which is a mere tool in these transactions, as distinct from a finance house carrying on perfectly genuine and reputable business in facilitating the introduction of companies either to the Stock Exchange or to finance companies.
I should also like to refer to what was said by the hon. Member for Sowerby (Mr. Houghton), who spoke of a new form of the Indian rope trick which depended upon loans to directors. I think the hon. Member will agree when I point out that loans to directors are not only subject to distribution charge for Profits Tax purposes, but can also be regarded as a distribution for Surtax purposes and need not be the glowing prizes which his correspondent seemed to assume they would be.
I turn to the reasons why it has been necessary to introduce this legislation and how it is that the Inland Revenue has been milked for a number of years by this dividend stripping operation. Let us look at how this has occurred. It is obvious that in the type of company which the right hon. Member for Huyton instanced—the company with three shareholders—that it is already covered by tax legislation under Section 245 of the Income Tax Act, 1952. It can be subject to Surtax direction if the company is withdrawing funds under the guise of capital or not distributing a reasonable proportion of profits as dividends.
If it is able to resist a direction of the Commissioners, that means that it is relying on the declaration the late Sir Stafford Cripps made in 1948 when he stated that


if private limited companies to which the Surtax Clause would apply continued to distribute a reasonable rate of dividend based on past history he would not take action under the provision which is now contained in Section 245 of the 1952 Act so as to ensure that the members of those companies bear Surtax.
Members of private companies which are amassing profits reach a point where with the machinations of the finance houses they have been able to withdraw those profits under the guise of capital and have been escaping Surtax. In the process they have slipped through Section 245 of the Act, and in all probability have already made representations to the Special Commissioners for Income Tax asking that they might receive a clearance so that there may be no question of any Surtax being levied upon them in respect of the past profits which they have retained.
10.15 p.m.
If we look to the reasons, we must come to the conclusion that dividend restraint is the basic cause of enabling these companies to amass undistributed profits. Dividend restraint is all very well in the case of public companies where increased dividends might have repercussions on the trade union movement, on wage rates, and so forth, but, in the case of private limited companies, it simply means that members of these companies are able to avoid the Surtax due if they had distributed a reasonable percentage of the profits.
The legislation before us tonight seeks to stop this form of tax avoidance, and since, in many instances, the company which has been sold to a finance house has subsequently been resold, after the cash has been taken out, to the original owners of the private company, I should like to ask my right hon. Friend the Chancellor whether he will give us some indication of the attitude which the Special Commissioners are likely to take in future when any of these companies, or members of these companies, apply to them for Surtax clearance under the 1952 Act.
I hope I have said sufficient to make it clear that I consider that the whole problem has been created by a purely artificial restraint upon our economy which prevented the normal distribution of dividends, or of reasonable distributions, and by applying that sort of thing while

ignoring the difference which exists between private and public companies, we have created a situation which has enabled finance companies and dividend strippers to co-operate to their profit.

Sir E. Boyle: We have, very properly, spent two hours or more on this Clause, and perhaps the Committee might well feel that the time is now approaching when we might come to a decision upon it. Perhaps I could first answer the point put by my right hon. and learned Friend the Member for Kensington, South (Sir P. Spens). I had hoped that I might achieve what for me would have been a very remarkable thing, and that is to give a completely satisfactory answer on a point of law to a former Lord Chief Justice of India. Although not so fortunate as that, I am able to say to my right hon. and learned Friend that subsection (8, b) of this Clause, to which he referred, is connected with the definition of a charity for Income Tax purposes. We will look into the precise wording, and I will write to my right hon. and learned Friend about it when we have had time to consider it further.
I should like to say how much I appreciated the opening remarks, even though I did not agree with all the later ones, of the hon. Member for Sowerby (Mr. Houghton). I will not take him up on the question of attitudes, as I know very well that attitudes are very often unprofitable things to argue about. I do very much agree with him that what we want to do is to make this Clause in such a form as will hit dividend stripping, while at the same time not hitting proper legal business purposes. I do not think that there is anything necessarily wrong in being a good business man, and I agree that we want to strike a happy medium here. We have tried to do our best, and I repeat that a great deal of time and thought has been given to the drafting of this Clause.
If, in practice, this Clause turns out not to be strong enough, as I have already said earlier this evening in the debate on an Amendment to the Clause, my right hon. Friend will not hesitate to consider whether further strengthening legislation may not be needed. I would say to the hon. Gentleman, who made a perfectly fair point when reading from a letter, that we shall consider other forms of stripping, and what one might call different species


of the same genus, if that is the correct biological term.
The right hon. Member for Huyton (Mr. H. Wilson) opened this discussion with a speech in which it would not be unfair to say he repeated a number of the arguments which he deployed on Second Reading, and on that subject I cannot do any more than give him the same answer which gave him on that occasion so far as concerns the question why we did not follow the bond-washing method of hitting the vendor of the shares rather than the purchaser. It would be tedious to repeat what I said in the Second Reading debate. One thing that the right hon. Gentleman forgot in his otherwise completely fair exposition was that in the case of bond washing there is an agreement to buy back. In the case of dividend stripping there is no question that the purchaser is the initiator of the operation. Therefore, it seems to us that he is the man on whom it is fair to impose the liability.

Mr. H. Wilson: The hon. Gentleman is so concerned to repeat the argument he used on Second Reading that he is now using it in reply to a point which I did not make this evening. On Second Reading, I said that in dealing with bond washing the attack came on the vendor, and the hon. Gentleman gave that answer, which, as far as it goes, was perfectly fair. I did not make that same point tonight. When the hon. Gentleman spoke on Second Reading, however, his answer was limited to saying that this was considered by his advisers to be the most effective way of dealing with it. He did not give any further reasons than that. Can he elaborate a little further tonight?

Sir E. Boyle: I do not think I can add any more to that. I am sorry if I misrepresented the right hon. Gentleman in any way, but I cannot add further now to what I said on the earlier occasion.
The right hon. Gentleman asked why this had not been done in the April Budget and I should like to answer that perfectly fair question. The information which led my right hon. Friend to say, in answer to a Question, that the relevant figure of what this was costing was £4 million, became available only recently the figures which were the basis of his Answer on 17th November became available only quite a short time ago.
The right hon. Gentleman will realise that information of this kind cannot be known with any precision until the end of the tax year, when repayment claims come to be made. Until those repayment claims came to be made, no information was available to the Inland Revenue that the loss for 1954–55 was anything like £4 million. There is nothing in the least sinister about this.

Mr. Wilson: This is an important point, for the reasons I gave in my speech. The hon. Gentleman tells us that it was not until getting on for 17th November that the Treasury could assess the size of the loss in statistical terms, yet even when the size cannot be measured in statistical terms one can still know that it is fairly serious. For instance, during the Budget debates the Chancellor agreed that the loss was getting worse. I do not ask him to say how much it is getting worse, but he said that it was getting worse without being able to measure the figures.
Is the hon. Gentleman seriously maintaining that his advisers were not aware before the April Budget that this was becoming a serious matter, even if they could not put any statistical estimate on it? If his advisers did not know that this was becoming a serious development, certainly, as my hon. Friend and I and others have mentioned, the trade Press knew that it was becoming serious. Surely the hon. Gentleman and the Chancellor read these papers from time to time.

Sir E. Boyle: I can only repeat—I say this with absolute sincerity to the right hon. Gentleman—that it was not until after the end of the tax year, when repayment claims come to be made, that we had any idea that the loss was anything like the figure of £4 million. I assure the right hon. Gentleman that that is so.
The only other point on which I should like to say a word is the point raised by my hon. Friend the Member for Bath (Mr. Pitman). All the Committee will be grateful for the advice and help that we have had in this discussion from my hon. Friend, who knows such a great deal about the subject. As I understand, my hon. Friend was suggesting that the Clause should not apply unless the shares which were bought by the dealing concern are actually sold at a loss.
I can only say that we have considered this point very carefully and that it is the opinion of my right hon. Friend that any such provision would open the door to serious further avoidance. There are a number of reasons for that, with which I need not trouble the Committee now, but to my hon. Friend I should like to say that we would not have come to this decision without looking into the matter very carefully.
We have spent some time on the Clause. I do not think there is any dispute in the Committee as to its importance and as to the importance of doing something severe about the question of dividend stripping; and as I have said, my right hon. Friend will not hesitate to look at this subject again in the light of how the Clause works in practice.

Clause, as amended, ordered to stand part of the Bill.

Postponed Clause 5 ordered to stand part of the Bill.

Second Schedule agreed to.

Orders of the Day — Third Schedule.—(PURCHASES OF SHARES BY FINANCIAL CONCERNS AND PERSONS EXEMPTED FROM TAX.)

Mr. H. Brooke: I beg to move, in page 19, line 12, after "year" to insert "(i)."
This Amendment paves the way for a subsequent Amendment, in page 19, line 14, in the name of my right hon. Friend. Perhaps it would be more convenient if I spoke about this Amendment and that one when we reach it.
Amendment agreed to.

Mr. H. Wilson: I beg to move, in page 19, line 12, to leave out "substantially."

The Deputy-Chairman: I think that with this Amendment, that in the name of the hon. Member for Stechford (Mr. Roy Jenkins), in page 19, line 14; to leave out "three" and to insert "five," and his similar Amendment in page 19. line 19, can be considered.

Mr. Wilson: I shall not detain the Committee for more than a few minutes on this question, because this Amendment, like the one I moved an hour or so ago on the question of the definition of the Commissioners' jurisdiction, is to obtain from the Government some clari-

fication, in this case clarification of the meaning in their mind of the word "substantially." It will be clear from the Schedule that if in the opinion of the Commissioners having jurisdiction in the matter—and the Solicitor-General gave us a statement on who those Commissioners, in different circumstances, were—
… the annual rate of dividend on the shares in question in the said year is not substantially greater than the annual rate of dividend on those shares in the period of three years ending on the relevant date.
certain things follow.
The phrase "annual rate of dividend" is a little obscure. We are not clear whether it means the average rate of dividend or whether it means the rate of dividend in one of the three years, perhaps the peak rate. I think that almost certainly it means the average. There is a reference elsewhere in the Schedule to make it possible for us to understand it does mean average, but it is not clear.
Quite apart from that, this word "substantially" seems to be a rather dangerous word to use. What does the Chancellor mean by "substantially"? Time and time again in debates on Finance Bills through the years, the Opposition of the time—of whatever party—have complained of the use of vague words or the vague use of words of this kind. It has been argued that such vagueness may give rise to very difficult legal actions. I hope that I carry with me the right hon. and learned Gentleman the Member for Kensington, South (Sir P. Spens) on this question.
I should be out of order if I were to dilate upon some of the cases in which there have been lengthy debates in Committee on the use of the word "substantially" or the word "mainly," cases in which different legal authorities might interpret the words in different ways. I recall, without going into the matter in detail, a long debate in connection with the uplift of Purchase Tax a year or two back, when the word "mainly" was used and there was a long debate about whether it meant 51 per cent., as some of us thought, or some higher figure. We were told, I think, by the Chancellor that he thought that it meant about 80 per cent.
The same difficulty arises about the word "substantially." Suppose that the annual rate of dividend in the three years


in question is x. Is the rate of dividend on the shares in question in the said year substantially greater if it is x plus 2, or x plus 3, or x 4? I think it is really a rather important point. I shall not press it at any length, but I hope that the Chancellor will reconsider it.
The Committee has always been against leaving these matters to the discretion of officials. When I say that, it is not a reflection on the officials themselves. We all know that officials of both the Customs and Excise and the Board of Inland Revenue have an extremely difficult task in interpreting the complicated legislation which we thrust at them. They may have had few more complicated pieces of legislation to deal with than this for dealing with dividend stripping. I think it is unfair to them and equally unfair to the taxpayer if this word "substantially" is thrown either on them or, indeed, on the Commissioners having jurisdiction in the matter, and I suggest that the right hon. Gentleman looks at this point again and, if possible, on Report, makes it a little clearer than it is at present.
10.30 p.m.
The Committee does not like these forms of definition which are usually called "Chancellor's foot definitions"—definitions which vary according to the length of the Chancellor's foot or in accordance with the opinions of the Commissioners or officials. I ask the right hon. Gentleman to tell us what the Government mean by "substantially" in this context, and if he cannot tell us exactly what is meant by it, whether he would agree, if we asked leave to withdraw this Amendment, to look at it again and perhaps make a statement about it on Report.

Mr. H. Brooke: I will very willingly respond to the right hon. Gentleman the Member for Huyton (Mr. H. Wilson) by saying that if we can see any better way of doing this between now and the Report stage we will gladly do it; but I must not hold out any hope to him that there is within view, at any rate at present, a better way of doing it. I am glad he said that he would be disposed to ask leave to withdraw his Amendment, because it would be impossible, as the Committee, I am sure, will realise, to remove the word "substantially" from here.
Let us examine the kind of case that might arise. A company might have declared in the past three years dividends of 4 per cent., 5 per cent. and 5 per cent., and if, in the fourth year, it repeated its dividend of 5 per cent. it would fall foul of the Bill because it would have increased its dividend above the average of the previous three years. I assure the right hon. Gentleman that there is no need to insert the word "average," because under paragraph (2) the Commissioners have to have regard to various matters—to all the dividends paid on the shares in the various periods, and they have to
take such averages and make such adjustments as may appear to them to be required for a fair comparison.
I think that more effectively achieves the result the right hon. Gentleman was seeking.
The fact is, one must have some word which indicates that reasonable and small dividend increases are permissible, but that large ones are not. I do not see at the moment, and nor does my right hon. Friend, any better way than to include the word "substantially," which we have already agreed to include in Clause 4 in a not wholly dissimilar context. With that explanation, I hope the right hon. Gentleman will not press the matter further, at the moment at any rate.

Mr. H. Wilson: I am not so worried about the word "average." I did indicate that I thought that was covered in the other part of the Schedule, to which the right hon. Gentleman has just drawn attention; but I am bound to say that even there the way the Schedule as drafted leaves it to the Special Commissioners to decide what averages are fair, not taking a flat average, as the Committee might have felt reasonable.
On the question of "substantially," the right hon. Gentleman has given a brief assurance that the matter will be looked at between now and the Report stage. He pointed out what I think the whole Committee realised, that if I were to press this Amendment successfully to a Division it might have quite a serious effect on the operation of the Bill, and he gave the illustration of the company that has paid dividends of 4 per cent., 5 per cent. and 5 per cent. Of course, it was not our intention to say that a very small increase


of that kind should be ruled out by the Bill. I made clear when I moved the Amendment that we certainly had no intention of pressing it to a Division, or asking the Government to accept it. It was put down for the purpose of elucidation.
Having taken as an example dividends of 4, 5 and 5 per cent., the Financial Secretary went on to say that a little increase in dividends would be all right, but a large one would not. Of course, he still has not told us what he means by "little," and what he means by "large." That attempt at elucidation did not carry us any further than his explanation concerning the word "substantially." We recognise the difficulties of the Chancellor, but I would ask him to reconsider this question between now and the Report stage. In the case mentioned, if a dividend of 50 per cent. were paid, that would be regarded as a substantial increase, and, if a dividend of 5½ per cent. were paid, it clearly would not. Somewhere between 5½ per cent. and 50 per cent. the increase would be regarded as substantial. We shall be letting this Clause pass in rather a sloppy manner if we do not attempt to define it more closely, and we shall be placing a very difficult task upon the Commissioners, who, somewhere or other, will have to draw a line between 5½ per cent. and 50 per cent.
I do not need to tell the Chancellor that there is a body of opinion which is beginning to say that we would do better in our tax legislation if we tore up the Income Tax Act, 1952, and many later amending provisions, and simply stated that the law in relation to taxation shall be whatever the Special Commissioners, or other Commissioners having jurisdiction in the matter, may decide at any time on the kind of question before them.
I am quite sure that the Chancellor would not accept the view held by that school of opinion, and hon. Members on this side of the Committee certainly would not do so, but every time a Bill goes out from this or any succeeding Committee with sloppy words like "substantially," where nobody says clearly what is meant, more and more power is put into the hands of the Commissioners; more and more responsibility is placed upon their shoulders. The argument of those who say that the law really means nothing, and that the

responsibility for tax matters has now passed into the hands of the Special Commissioners, is strengthened. I ask the right hon. Gentleman to have another look at the matter, and I hope that he will be successful in finding a better form of words than these, which I am sure both sides of the Committee agree to be unsatisfactory. I beg to ask leave to withdraw the Amendment.
Amendment, by leave, withdrawn.

Mr. H. Brooke: I beg to move, in page 19, line 14, at the end, to insert:
or
(ii) in a case where the shares in question were acquired in the ordinary course of a business of arranging public issues and placings of shares, represents a yield on the cost to the person receiving the dividend which is not substantially greater than the yield obtainable by investing in comparable shares the prices of which are quoted on stock exchanges in the United Kingdom.
This Amendment and the Amendment in page 19, line 18, are designed to make sure that the Bill does not interfere with perfectly legitimate transactions. It is the wish of us all that the effect should be to stop those who are trying to cheat, while not interfering with perfectly legitimate and normal business. The main purpose of paragraph 2 of the Schedule is to allow normal business to continue. However, it has come to my right hon. Friend's notice that unless we amend it in the way he suggests a certain type of transaction might be unfairly caught by the Schedule.
If an issuing house acquires, in the normal course of its business, a block of shares in a private company with a view to a public issue of the shares, or to placing them among, perhaps, institutional investors, the rate of dividend which that private company was paying as a private company might be quite different from that which would be paid it the shares were sold to the public. There are various reasons which might cause a dividend on the shares of a private company to be kept low, as distinct from the shares in a public company.
For example, a high proportion of the private company's profits might go out in the form of directors' remuneration to the owners of the shares, and the dividend, in the strict sense, would be relatively small. When the issuing house has acquired the shares of this private company, clearly, on proceeding to sell them to the public or to place them, it


will know that it will have to indicate a prospective dividend yield that will be sufficiently attractive to persuade people to buy the shares. It will calculate that dividend in relation to the price that it has paid for the shares and the future dividend thus calculated may be perfectly appropriate to a company of that kind when a public company, though it is, in fact, substantially higher than the dividend that was being paid so long as it was a private company.
This will cause no difficulty at all provided that the first dividend paid by the company after its acquisition by the issuing house is paid not to the issuing house, but to the investors who have bought the shares. That will be the normal event. But, of course, it may not always happen so. It may be that the issuing house will have to nurse the company for a time before it is in a position to offer or to place the shares.
If it had to nurse the company for a year or more and a dividend was declared in that time, a dividend appropriate to the company as a public company, that dividend might, by being substantially higher than the previous dividend paid by it as a private company, be caught by the Bill. The purpose of this Amendment is to seek to overcome that difficulty and to preserve the possibility of these perfectly legitimate and normal transactions with no thought or idea of dividend stripping in them from being stopped by the Bill.
The effect of the Amendment would be that where shares are acquired in the ordinary course of business of arranging public issues and placings of shares, a dividend which is received within one year of the date of acquisition of the shares will not be caught by this Bill if the annual rate of dividend paid in that year is not substantially greater than the yield obtainable by investing in comparable shares, the prices of which are quoted on Stock Exchanges in the United Kingdom.
In other words, if the dividend that is paid bears to the price which the issuing house has paid the same general relation

that the dividend paid by an ordinary public company of that type bears to the market price of that company's shares on the Stock Exchange, then it will be accepted by this Bill as a genuine transaction, and will not be liable to dividend stripping penalties. That is all that this Amendment seeks to do. I have explained it as briefly as possible and, I trust, as lucidly as possible, and I hope that it may be acceptable to the Committee.

Mr. Pitman: One very short question. Does the word "public" apply to both issues and placings of shares? I want to thank the Chancellor very much for this concession to genuine business. There was a point of doubt, and I did not know whether this was the time for clearing it up.

Mr. Houghton: I presume that this is the price of virtue. I hope that the hon. Member for Bath (Mr. Pitman) has taken note of what happens when one tries to discriminate in favour of the genuine transaction in legislating against tax avoidance. It might be a discouragement to the hon. Gentleman who raised it earlier.

10.45 p.m.

Mr. H. Brooke: If I may reply to my hon. Friend the Member for Bath (Mr. Pitman), the word "public" is related only to the noun "issues."

Amendment agreed to.

Further Amendment made: In page 19, line 18, after "case" insert:
under sub-paragraph (i) of the said paragraph (b)."—[Mr. H. Brooke.]

Schedule, as amended, agreed to.

Orders of the Day — Fourth Schedule.—(ENACTMENTS REPEALED.)

Amendments made: In page 21, column 3, leave out lines 33 to 36.

In page 21, leave out lines 38 and 39.—[Mr. H. Brooke.]

Schedule, as amended, agreed to.

Bill reported, with Amendments; as amended, to be considered Tomorrow and to be printed. [Bill 79.]

COMMERCIALLY-OWNED CEMETERIES, NOTTINGHAM

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Godber.]

10.46 p.m.

Lieut.-Colonel J. K. Cordeaux: The long proceedings of the Committee which have just ended have been concerned very largely with the question of the cost of living, and the matter which I am asking the House to consider now is largely concerned with the cost of dying. It is also concerned to a large extent with those people who, during their lifetime, have been looking after a dear husband or wife or parent, and being faced, later on, with the possibility of not being allowed to look after their graves when they are dead. This is a problem that is at present causing a great deal of distress to people in Nottingham, and it is likely to arise in any town or city where commercially-owned cemeteries exist.
The legal position with regard to these cemeteries is undesirable. Arrangements can be entered into with members of the public to sell to them rights of burial and, having done so and sold as many as is physically possible according to the size of the cemetery, they can go into liquidation and renounce their obligations, leaving a filled cemetery to be looked after by anybody who is willing to assume the responsibility. In the event of nobody being prepared to undertake such an onerous task, the unfortunate people who have purchased their burial rights will be faced with the loss of their money and having to buy burial rights elsewhere. Worse still, they are denied the opportunity of finally resting by the side of somebody whom they love. Likewise, those people who, for years, have made a weekly pilgrimage to put flowers on a grave which they have come to look upon as their own property, may arrive there one day and find the gates locked against them.
I am not making indiscriminate allegations against all private cemetery companies or tarring everybody with the same brush, but I hope I have said enough to

suggest that such cemetery companies may develop into about the worst example of private enterprise that could be found anywhere.
I believe that the first time this question came to the notice of this House was on 5th May, 1953, when the hon. Member for Bristol, North-East (Mr. Coldrick) asked a Question about the Ridgeway Park Cemetery, in Bristol. In the course of three short answers my right hon. Friend the present Secretary of State for Foreign Affairs described the case as "difficult," "intriguing," "extraordinary," "obscure," "curious," "macabre" and "almost unique." All those adjectives may have been applicable in this case, except the last. It was not a unique case and the Town Clerk of Nottingham wrote to the Ministry and pointed out that exactly the same sort of thing would happen in the case of the Nottingham Cemetery.
The cemetery was started by a corn-many in 1836 by Act of Parliament, which laid down certain obligations from the point of view of maintenance which the company had to observe, but said nothing at all about the possible liquidation of the company, or what was to happen when the cemetery was filled. At first, the cemetery was extremely profitable. Large profits were made and big dividends were paid to shareholders, but no reserve was built up. Bodies were buried as close as they would lie together and by 1923, when 150,000 had been buried there, the corporation stepped in and promoted a Bill to restrict further burials.
After that, some money was put to reserve, but by then it was too late. The cemetery was rapidly filling up and, in fact, money was lost, with the result that the very small reserves became seriously depleted. In 1949, the company asked the corporation to take over the cemetery and all the company's obligations and also offered the whole of its accumulated reserves, but as, by then, they amounted to no more than £10,000 and maintenance costs of the cemetery were £3,000 a year. very naturally the corporation decided it was not entitled to burden the ratepayers with the upkeep of a filled cemetery merely because it was no longer profitable to its private owners.
The corporation continued to stand firmly by that decision and in 1953 the company applied to go into voluntary liquidation. The corporation knowing nothing about it and, therefore, not opposing it, the company went into liquidation in May of that year. I do not wish to weary the House with a long list of the legal proceedings in the course of which Nottingham Corporation did its best to prevent the liquidator disclaiming the cemetery, but eventually the liquidator obtained leave to disclaim and a disclaimer was issued in July this year.
Some distressing results followed. The special manager appointed by the receiver was discharged; the cemetery was swiftly closed and the gates locked. Immediately there were such events as protest meetings organised in the town and at the cemetery gates and wreaths were tied to the railings outside the cemetery. There was a case of a man who committed suicide and was said by his widow at the inquest to have done so because he was distressed at the closing of the cemetery. As is usual in such cases, the most heart-rending result was the pain suffered by the inarticulate majority who wished to carry flowers to the graves of relatives lying in the cemetery by whom they had hoped to lie when they died.
In fact, the results were not quite so tragic as they might have been because a caretaker who worked there previously opened the cemetery unofficially and since then access has been obtained, although unofficially. The position, nevertheless, remains a most lamentable one. I am not a learned Member, but the legal position appears to me to be exceedingly obscure. It seems certain that when that disclaimer was issued the cemetery did vest in the Crown as a bona vacantia. I understand that there is a distinction in this case as being seized in law and seized in fact. If one is seized in law in a case like that one has no obligations as regards the cemetery unless one takes the legal possession of it, and that the Crown has made very clear it is not prepared to do.
I put a Question to the Minister of Housing and Local Government on 25th October and I will read the relevant part of the reply. The Minister said:

In the circumstances, it would seem appropriate that the Nottingham City Council should assume control of the cemetery. Should the Council decide to do so, I would be prepared to make a contribution towards its expenditure.
In answer to a question asking whether the cemetery would be taken over by the Corporation as a cemetery or in any other capacity, such as an open space, my right hon. Friend said:
What I have in mind is that the council should take it over naturally as a cemetery and not for any other purpose."—[OFFICIAL REPORT, 25th October, 1955; Vol. 545, c. 9.]
Those replies caused a certain feeling of modified relief in Nottingham, but I am afraid it does not appear to have been justified, because from recent conversations between the Ministry and the Nottingham Corporation it has appeared that the Ministry are not prepared to grant any financial assistance unless the cemetery is taken over as a public open space, when it would attract grant under the 1906 Act. I hope that may not be the case, but it begins rather to look as though it is.
I do not think the corporation could possibly convert the cemetery or any part of it into an open space, because people have been buried there fairly recently and it would involve moving the graves. I feel that my right hon. Friend is going back on the undertaking which he gave me on 25th October when he gave an unqualified promise of financial assistance. If that is so, it will come as a great disappointment to very many people in Nottingham. I most earnestly ask him to reconsider his attitude and to see whether he can state a general policy which would apply in the case of all such cemeteries and not merely that to which I have referred. It is my information that a very considerable number of these cases will crop up within the next few years.
In this connection, we have a close and continuing interest in the matter in Nottingham, because we are in the unfortunate position of having not merely one but two of these cemeteries. The other cemetery, to which I shall refer as the second cemetery, was originally started by an unlimited company in 1852. It was a very profitable venture at first and I understand that until comparatively recently it was paying dividends to shareholders at the rate of 25 per cent. Recently, however, the cemetery has been


filling up and the profits have become negligible, and in the two recent years the company has been running at a loss. Last year this company formed itself into a limited company, and although I am not suggesting that it is insolvent or has any intention of going into liquidation shortly, the fact remains that it is now in a position to do so. It is understandable, after what has happened, that there is great fear and anxiety in Nottingham as to what might happen.
The cemetery company has already asked the corporation if it would consider taking the cemetery over and negotiations are still going on, but here again the accumulated reserves are quite inadequate to pay for the £4,000 a year maintenance.
Both these cemeteries are large, and I am sure my hon. Friend the Parliamentary Secretary will understand the great distress which has been caused in Nottingham and the great anxiety which is still felt. I assure him that I have no doubt about the distress and anxiety, and before I close I should like to quote three extracts from some of the letters which I have received. The first is:
As I am a grave certificate holder and my parents are both laid to rest in the cemetery, I am very much concerned at the action taken by the General Cemetery Company.
Here is the second:
I write to appeal to you to use all your efforts to try and get the Nottingham General Cemetery re-opened. I strongly protest against it being closed as both my parents are buried there and I have always gone up once a week to tend to their grave.
Finally:
My grave number is 4138. My mother and our dear only son lie there. We bought the grave for ourselves. What are we going to do now? Cannot you do your best towards more burials in this cemetery for us? Us old people should not have this burden to bear.
These extracts are typical of many letters and interviews I have had during the summer months. Not only am I anxious to end the distress of those people, but as far as possible to allay the anxiety of others, both in Nottingham and elsewhere, who might be affected in the future. Although it would be rather like locking the door after the horse has been stolen, I would very much welcome any possible legislation which might prevent the public from being so heartlessly exploited in future. I know I

should be out of order if I were to suggest any future legislation in this debate, but it is a thing that I should like to do at some time on a proper occasion.
Meantime, I am asking the Parliamentary Secretary whether the Minister could propose to reconsider his decision, as I understand it now to be, in the case of the Nottingham General Cemetery, and also to state a policy which would apply in similar cases. If he could do that I can assure him he would earn the great gratitude of people not merely in Nottingham but elsewhere.

11.1 p.m.

The Parliamentary Secretary to the Ministry of Housing and Local Government (Mr. W. F. Deedes): My hon. and gallant Friend the Member for Nottingham, Central (Lieut.-Colonel Cordeaux) has given the House particulars of a very difficult case, one with a complicated background and one in which there are no very clear precedents to guide us. I most certainly appreciate, as does my right hon. Friend, that this is a matter of close personal concern to many people, and my hon. and gallant Friend has done a service to many of his constituents in raising it tonight.
My hon. and gallant Friend referred to the general position, but I should probably not be in order if I were to pursue what he said on that. I want to confine my remarks to the specific problem of Nottingham General Cemetery. My hon. and gallant Friend put his facts very fairly and I do not dispute anything of what he said about the background. I want, however, to give very briefly my own version of the past history of this, because it has some bearing on the attitude which my right hon. Friend now feels it proper to take over this problem.
This cemetery is, as my hon. and gallant Friend said, a private cemetery which, until quite recently, belonged to the Nottingham General Cemetery Company. It was incorporated nearly 120 years ago, in 1836, by a local Act of Parliament. It occupies just over 18 acres, and it is believed that between 150,000 and 200,000 people are buried there. Until the 1920s the company was fairly prosperous. But in 1921, the Nottingham Corporation warned the company that the time was approaching when further burials would


be prejudicial to public health, and the company then started to build up a reserve fund by limiting dividends to provide against a future diminution of revenue. However, the company's financial position got steadily worse.
I am advised that it was on several occasions that the company asked the corporation to take over responsibility for the cemetery—my hon. and gallant Friend has quoted one occasion—and was prepared to hand over its reserve fund to the corporation, but the corporation. no doubt as it thought quite properly, did not regard this as a sufficient quid pro quo. In 1949, it was estimated that it would cost more than £3,000 a year to maintain the cemetery. Then we come to the position which has now arisen, where, in May, 1953, the company was wound up by order of the High Court, and the Official Receiver was appointed liquidator. In June, 1955, the Official Receiver obtained leave from the High Court to disclaim the cemetery and liabilities attached thereto, and formal disclaimer was made on 29th July.
I accept what the Nottingham Corporation says. It was not aware, at the time, of the petition for winding up, and, therefore, did not oppose it. It did oppose, however, the Official Receiver's application for leave to disclaim the cemetery on the grounds, among others, that it would be for the company to promote another Bill in Parliament and that the shareholders should be personally liable for the company's obligations. Neither argument succeeded, and leave to disclaim was granted.
The legal consequence of the disclaimer is that neither the Official Receiver nor the company has now any rights in the cemetery, and under the Companies Act, 1948, the land vests in the Crown, or, to be exact, in the Commissioners of Crown Lands, as bona vacantia. This does not mean that the Crown is under any obligation to manage or maintain the cemetery. We understand that the liabilities of the former cemetery company would attach to the Crown only if the Commissioners took possession of the cemetery, and that they do not intend to do.
If we accept that the Commissioners of Crown Lands have no obligations in the matter, we think, as my right hon.

Friend said the other day, that the only solution of the problem would be for the Nottingham Corporation itself as the local authority for the area to take over and maintain the cemetery. It has power to do this under Section 9 of the Open Spaces Act, 1906. Under that Act it could maintain it either as a cemetery or, as far as circumstances allow, as an open space.

Lieut.-Colonel Cordeaux: It is almost impossible for the corporation to do that. The graves would have to be removed. It is almost impossible to turn the ground into open space.

Mr. Deedes: I appreciate that. I have made inquiries into that matter. I think it is true that the extent to which it could be made an open space is certainly a question which would have to be considered.
If the cemetery were converted into open space we could pay a grant—I want to go into this because it explains what my right hon. Friend said the other day—under the Town and Country Planning Act, 1954, towards the expenditure incurred by the corporation for that purpose. I think there has been some correspondence about the grant which could be paid to the council if it decided to take control of the cemetery. The Minister, of course, has no power to pay grant towards expenditure on the cemetery as such. I am sure Nottingham Corporation is aware of that.
As he explained in the further reply to the Question of the hon. Member for Nottingham, North (Mr. J. Harrison) on 31st October, grant in this instance would be payable under the provisions of the 1954 Act towards expenditure incurred for the purpose of providing a public open space. I stress that, not from the point of view of its practicability, for I understand my hon. and gallant Friend's point, but to clear up a misunderstanding which may have arisen from what my right hon. Friend said in answer to my hon. and gallant Friend's Question.

Lieut.-Colonel Cordeaux: The point I was trying to make was that the answers given by my right hon. Friend on 25th October did appear to give an undertaking that provision would be made without conditions being applied.

Mr. Deedes: I think that if my hon. and gallant Friend studies further what my right hon. Friend said he will see that my right hon. Friend was at pains to correct the impression which he felt my hon. and gallant Friend might have gained from the answer to the Question he asked.
Nottingham Corporation has expressed reluctance to take this course. We have agreed to give it a more precise indication of the amount of grant which might be paid on expenditure attributable to the provision of an open space, and we are now going into that in a little more detail. My hon. and gallant Friend says the legal position is obscure. I can only repeat what has already been said, that the Crown has liability to maintain the cemetery only if the Commissioners take possession. The Commissioners did not seek to acquire the cemetery on behalf of the Crown, and they did not consider it a suitable property to manage as part of the Crown estates. On the other hand, it is quite a normal arrangement for local authorities to manage cemeteries.
However, if this large cemetery, which concerns a very large number of people in the City of Nottingham, were to remain abandoned and uncared for, there is not much doubt that it would become a blot on the landscape and a subject of complaint and of great sadness for many inhabitants of the town. They would, I think, not unnaturally look to their own local authority, and not to the Crown, to put matters right, and I should add that the corporation have got the necessary powers. I accept that this is not an isolated example of what may happen. The difficulty may occur elsewhere, because there are still a number of private cemeteries in being.
I think that during the last century most new cemeteries were provided by local authorities. My information is that 30 to 40 private cemeteries were established

in the first half of the nineteenth century. It may be that some fresh legislation is desired, but I think I should add that it is not certain whether this would provide any better solution.
We do not, at this point, want to force the corporation into doing anything against its will. Our concern has been to find a satisfactory conclusion to a problem presented to us, and which up to now has not lain with us at all. We have been advised that the Commissioners for Crown Lands are under no legal obligation at all to maintain the cemetery and we understand that they have no intention of assuming responsibility. My right hon. Friend has no influence to persuade them to incur such an obligation.
It does seem to us, therefore, that the only alternative, assuming that nobody wants to see this cemetery remain derelict, is for Nottingham Corporation to take control, as it has power to do. We have asked the corporation earnestly to consider this. I appreciate that it would involve the corporation in considerable labour and expense, but it may feel, weighing up the prospect of local dissatisfaction and distaste, that such expenditure might, in the long run, be the right course to take. I can only say that we will go as far as we can, although under no statutory obligation in this matter, to help to reach an amicable arrangement.
My hon. and gallant Friend knows from what my right hon. Friend the Minister has said, that he will go to considerable pains to find the right answer. I have thought it right to outline as clearly as I can the situation as we see it and not necessarily as we would wish that it might be.

Adjourned accordingly at fourteen minutes past Eleven o'clock.